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Text | Xie Zefeng

Editor | Yang Xuran

Sitting on the oil treasure trove, after decades of exploitation, the Middle Eastern countries have accumulated huge wealth. However, the Arab world cannot sit back and relax with only oil and dollars, which may even mean future problems and risks.

With the dramatic changes in the global energy system, the status of fossil energy has plummeted, and the European Union has even called coal and oil "dirty fuels." With the strong rise of new energy sources such as lithium batteries, wind power, and photovoltaics, fossil fuels have reached a critical historical node.

However, after years of reaping the benefits of oil and holding huge amounts of capital, Saudi Arabia and other Middle Eastern powers can "invest in the future."

Currently, Saudi Arabia's capital investment is mainly carried out through two major entities, namely the sovereign wealth fund Public Investment Fund (PIF) and oil giant Saudi Aramco.

Before 2015, Saudi capital was basically invested in the country's infrastructure construction. The turning point occurred after Crown Prince Salman came to power and announced the "Saudi Vision 2030". The huge Saudi capital began to frequently invest overseas. Its strategy was completely different from before, becoming more active and open, and with clear strategic goals.

After China and Saudi Arabia established a comprehensive strategic partnership, Saudi capital gradually began to enter China directly, and the scope of investment also shifted from the early focus on Internet unicorns and start-up technology companies to gradually switching to real industries such as oil and new energy.

Capital has obviously taken on the most critical role in leveraging Saudi Arabia's historical turnaround, and the Chinese market and Chinese companies have become one of the most important destinations for Saudi capital.

01 Two pillars

The huge Saudi consortium is actually highly concentrated in its overseas actions. Its overseas investment relies on two major pillars - the Saudi sovereign fund Public Investment Fund (PIF) and Saudi Aramco, which correspond to capital investment and industrial investment respectively.

As a typical rentier country that relies on oil energy, Saudi Arabia is rich because of oil, but also trapped by oil. As early as in 1970, the goal of "economic diversification" was listed in Saudi Arabia's first five-year plan.

But for nearly 50 years, the honey-like happiness brought by oil has made the pace of economic transformation hesitant. It was not until 2016, when the young Crown Prince Salman took power, that drastic reforms were officially implemented.

In April of that year, Saudi Arabia announced its "Vision 2030", which aims to diversify its economic sources and reduce its dependence on oil, with investment being one of the main ways to achieve this.

Among the top ten sovereign funds in the world, four are from Middle Eastern countries, namely Abu Dhabi Investment Authority, Saudi Public Investment Fund (PIF), Kuwait Investment Authority and Qatar Investment Authority. Together with the Dubai Investment Company of the United Arab Emirates, at least five of them are now active on the world stage.

According to previously published data, PIF's assets under management (AUM) exceeded 2.23 trillion Saudi riyals (about 594.556 billion U.S. dollars) in 2022. Statistics from SWFI show that its latest total assets are as high as 925 billion U.S. dollars (about 6.7 trillion yuan).

Saudi Aramco has long been the world's largest oil and gas company, and one of the world's most profitable and largest companies by market value. It owns the world's largest onshore oil field and the largest offshore oil field. Its annual profit is equivalent to 3ICBCor 4ABC。

As the cornerstone of the national economy, it is no exaggeration to say that Saudi Aramco determines the fate of Saudi Arabia.

PIF and Saudi Aramco share weal and woe. PIF is the major shareholder of Saudi Aramco, and Saudi Aramco is the core source of PIF's funds.

On the one hand, Saudi Aramco's overseas investments are made directly by the group and its subsidiaries, mainly focusing on the mid- and downstream oil industry chain; on the other hand, it makes venture investments in new technology companies through its Prosperity7 and other funds, with the goal of building Saudi Aramco into a global industrial group.

Compared with other sovereign funds, Saudi Arabia's capital has previously focused on the domestic market. Data shows that before 2015, 98% of the funds managed by PIF were invested in local infrastructure construction, and only 2% flowed to overseas markets.

This obviously does not match Saudi Arabia's grand ambitions, and is of no benefit to Saudi Arabia's economic and social development. Since Saudi Arabia is heavily dependent on fossil energy and related industries, new energy, new technology and other future tracks have been basically missing in Saudi Arabia. This is far from the national prospects outlined by the "Vision 2030".

Therefore, in order to foster the country's economic growth and the development of emerging industries, PIF's investment has shifted to a more open attitude, with investment areas shifting from domestic to overseas.

PIF's goal is to achieve a management scale of US$2 trillion by 2030 and become the world's largest sovereign fund - there is still a gap of more than US$1 trillion.

PIF Managing Director Rumayan once revealed that by 2030, half of the $2 trillion will be invested in Saudi Arabia and the other half in the international market.For Chinese companies and investors, that is irresistible wealth and future.

02 Path Change

Saudi capital investment in China was previously mainly "indirect entry into China", and the most important channel was Masayoshi Son's Vision Fund.

The legendary story between Masayoshi Son and the Saudi Crown Prince is still circulating in the venture capital circle. In 2016, Masayoshi Son met with Prince Mohammed bin Salman, who used only a 45-minute speech to get the young Crown Prince to pay a $45 billion check, becoming the largest LP of the Vision Fund.As a result, the two parties created a fund of US$100 billion that shocked the world.

But Saudi tycoons are not stupid because they have too much money, nor are they impressed by Masayoshi Son's boast that he can bring "a return of 1 trillion". The most critical factor is that the investment direction of the Vision Fund perfectly matches Saudi Arabia's expectations for transformation. It can also be said that the investment direction mentioned by Masayoshi Son is too consistent with the "future world" in the mind of Crown Prince Salman.

Through the Vision Fund, Saudi capital participated in the acquisition of Didi, ByteDance,Zhongan Online、Ping An Good Doctor、shell、Financial OneConnectInvestment in Chinese technology and Internet companies.

However, the subsequent story was not so perfect. Due to the failure of projects such as WeWork and Uber, the first phase of the Vision Fund suffered a lot of losses. When it came to raising funds for the second phase, Saudi Capital decided to say goodbye to Masayoshi Son.

With the increasingly stringent domestic antitrust and other regulatory measures and the shrinking space of the global technology industry, the valuations of Internet companies in various countries have shrunk significantly. The companies invested by the Vision Fund have suffered huge valuation drawdowns, and PIF has failed to achieve its original goals.

However, Saudi capital did not cut off its ties with China.From indirect to direct investment, from focusing solely on the Internet to focusing on real industry, from over-reliance on the Vision Fund to building more open and diverse channels.

Since 2019, PIF has started to cooperate with Chinese state-level investment companies, technology companies and local governments to establish three funds or investment institutions. They are the US$2 billion China-Saudi Arabia Industrial Investment Fund (CSIIF) jointly established with China Investment Corporation,AlibabaThe joint venture investment institution YiDa Capital cooperated with Shenzhen Futian District to establish Blue Ocean Taiku (Shenzhen) Private Equity Company.

CSIIF mainly focuses on major projects related to the "Belt and Road" initiative and Saudi Arabia's Vision 2030; Yida Capital focuses on investing in Chinese technology companies and promoting the implementation of projects in Saudi Arabia; Blue Ocean Technology was established not long ago, and the size of its first fund exceeds US$1 billion.

To date, PIF's investment in China has reached US$22 billion (about RMB 160 billion), mainly focusing on sustainable development, technology, automobiles, health, entertainment and other fields.

Another major investor, Saudi Aramco, was more direct and made large-scale equity investments in its Chinese counterparts. In 2023, Saudi Aramco acquiredRongsheng Petrochemical10% equity, and reached a contract with Zhejiang Petrochemical to supply 480,000 barrels of oil per day (for 20 years); spent US$12.2 billion to establish a joint venture with North Industries and Panjin Xincheng to build a large-scale refining and chemical complex with a daily output of 300,000 barrels.

Image source: Mirror Studio

In the same year, Saudi Aramco reached an agreement with three other petrochemical giants to acquire Shenghong Petrochemical,Hengli Petrochemical, and 10% of Yulong Petrochemical. It is no exaggeration to say that Saudi Aramco is fully marrying China's private refining and chemical industry.

Saudi Aramco also established a venture capital subsidiary, Prosperity7 Ventures, which was named after the first oil well in Saudi Arabia that produced oil and is known as the "Well of Prosperity". This institution focuses on investing in technology startups, and has invested in projects such as Fulian Technology, Hongjing Intelligent Driving, Fourier Intelligent Technology, and Zhipu AI.

According to statistics, Saudi Aramco may be the foreign company with the largest investment in China in 2023. It can also be clearly seen that Saudi Aramco strengthens its ties with China through oil and paves the country's future development path through capital.

03 Industry Links

The underlying logic behind the flow of Saudi capital to China is that the economies of the Middle Eastern countries and China are highly complementary. Saudi Arabia itself lacks industries such as new energy, infrastructure, technology, and entertainment, while China is rich in coal, poor in oil, and has little gas. At this stage, private enterprises have a more urgent need for capital.

The prospects for cooperation between Saudi Arabia and China are undoubtedly very broad. However, after the failure of Son Masayoshi's first battle, Saudi tycoons now appear to be quite cautious and pragmatic.

Chinese businessmen who have dealt with Saudi Arabia pointed out that Saudis are good at bargaining and are very shrewd. Negotiating business requires carefulness and patience. Some leaders of state-owned enterprises even said that the biggest risk in operating in the Middle East is business risk. For Chinese GPs who want to get capital, compared with sovereign funds in the UAE, Kuwait and Qatar, PIF's money is actually the most difficult to raise.

This is due to the heavy responsibility that PIF shoulders. The “2030 Vision” clearly states that in addition to increasing its scale, PIF’s goal is toWe need to unlock new industries for Saudi Arabia, strengthen strategic cooperation, and more importantly, localize cutting-edge technology and knowledge with the help of PIF.

Therefore, when investing, Saudi capital is more concerned about whether the project can be introduced into the country. For example, Pony.ai received a $100 million investment from Saudi New Future City Investment Fund (NIF) last year. As a condition, Pony.ai needs to establish a joint venture with NEOM, and the Robotaxi fleet, autonomous driving production and manufacturing, and R&D center must be located in New Future City.

Pony.ai receives $100 million in funding from Saudi New Future City

At the end of last year, Skywell Auto and Saudi Arabian company Sumou Holding established a joint venture, planning to set up a new energy vehicle production and R&D base in Saudi Arabia, with an annual output of approximately 100,000 new energy vehicles.

In addition, Saudi Aramco has also invested in a joint venture between Geely and Renault to develop next-generation synthetic fuels and hydrogen energy technologies, which are obviously projects and industries that are very consistent with the 2030 Vision.

visible,Only projects that can effectively supplement Saudi Arabia's domestic industrial chain, truly establish the industrial chain in the country, and help the country's economic transformation can ultimately gain the favor of Saudi capital.

Saudi Arabia has its own thoughts on investing in the entertainment and fashion industries. For a long time, the cultural and customs reforms in Arab countries have been slow, which has deeply hindered the country's economic reforms.

Saudi Arabia has made historic changes in this regard. The "Vision 2030" states that the female work participation rate should be increased from 22% to 30%. Previously, Saudi Arabia has significantly reduced the power of religious police, women's right to drive, start their own businesses, and have custody of their children after divorce.

In 2018, Saudi Arabia's first commercial cinema was allowed to open in Riyadh, and "Black Panther" became the first commercial film to be released after the ban on Saudi cinemas for 35 years.

Saudi women attend first film screening

In February last year, PIF invested $265 million in domestic e-sports company VSPO, and the two sides signed a memorandum of cooperation worth $8.5 billion. In addition, the 2024 "E-sports World Cup" is also planned to be held in Riyadh, the capital of Saudi Arabia.

Saudi Arabia even held a swimsuit show on the shores of the Red Sea, which was completely unimaginable in Saudi society before.

The unblocking and recovery of the cultural and entertainment industry is also an important part of Saudi Arabia’s social change. For more ordinary people, this may be the most intuitive and closest part to life.

04 Conclusion

At present, my country-Saudi Arabia economic and trade exchanges are at an all-time high. PIF plans to open an office in Beijing soon.Saudi Arabia ETFThe fund has received continuous attention from the market after its listing. China and this Middle Eastern giant are moving in an unprecedented two-way direction.

But it is not easy to go to Saudi Arabia to pan for gold.

As this article says, Saudi capital traveled across the ocean to China not to be a philanthropist or savior of Chinese companies, but its fundamental purpose is to promote economic and social changes in its own country and make Saudi Arabia more successful and powerful.

But entering Saudi Arabia requires determination and courage for Chinese companies, because the localization of its industries is very difficult. People have enjoyed petrodollars for too long and are unwilling to work at the grassroots level, while the Saudi government requires companies to have a certain percentage of local employees.

Chinese companies going to the Middle East must face differences and challenges in culture, employee policies, religious beliefs, etc., and many companies will retreat because of this.

However, facing the trillion-dollar blue ocean market, China-Saudi Arabia cooperation is still a long way to go. After all, the rise of Saudi Arabia and the entire Middle East will be a historic opportunity that will go down in history.