October 04, 2012
- Over the next two years, 80% of investors surveyed expect significant growth in Chinese trade and 65% expect significant growth in Chinese investment activity in the MENA region
- Top 3 forms of investment: M&A (85%); Public Private Partnerships (75%); Greenfield Investment (60%)
- 75% of respondents anticipate Chinese investments to be in the form of majority stakes
- Respondents cite energy security as the key driver for Chinese investment, followed by PRC government policy and promotion (60%) and the growth potential in the Middle East (55%)
- Almost two thirds (60%) of respondents express concerns about managing legal and regulatory issues in the region
- Sovereign risk and political instability drive Chinese investors to MENA’s top two regional business hubs: Saudi Arabia and the United Arab Emirates
- 85% of respondents believe Dubai will continue to develop as a hub for investment activity in the MENA region
- Nearly two thirds (60%) expect continued steady expansion of the yuan as a reserve currency and a settlement currency
Nearly three quarters (70%) of Chinese investors regard trade and investment in the Middle East and North Africa (MENA) region as “very important” for China’s economic future, according to a report commissioned by Latham & Watkins, a global law firm. Over the next two years, Chinese trade and investment in the MENA region is expected to increase substantially; 80% of respondents predict big growth in trade; while 65% expect significant growth in investment activity.
Remark, the research arm of The Mergermarket Group, surveyed private and state-owned Chinese corporate executives and private equity professionals in mainland China and Hong Kong. Over the next two years, the Top 5 forms of Chinese investment in the MENA region will be M&A (80%), public private partnerships (75%), greenfield investment (60%), joint ventures (55%) and equity capital (35%), according to the respondents. They note the importance of public private partnerships as the MENA region looks for investment capital and human capital to develop infrastructure assets.
Respondents are split on which type of investor will have the greatest success in the MENA region: 50% cite private strategic companies, while 40% point to state-owned enterprises. Seventy-five percent of respondents anticipate Chinese investments will be in the form of majority stakes, allowing Chinese businesses to take control while providing for local ownership and local expertise as well as compliance with local foreign ownership regulations.
“The strategic link between China and the Middle East is of paramount importance to the world economy. The dynamism and growth potential of these two regions is phenomenal. As trade and investment activity flows more strongly between these two economic powerhouses, the new Silk Road will become an even more influential business and financial highway for the flow of ideas, investment and innovation,” said Bryant Edwards, a corporate partner at Latham & Watkins in Hong Kong.
“Dubai has become a magnet for Chinese businesses operating in the Middle East and Africa,” said Jeff Singer, Chief Executive Officer of the Dubai International Financial Centre Authority. “Bilateral trade between China and the UAE has been increasing steadily over the last decade and is expected to exceed US$100 billion by 2015. Besides trade, there has been considerable progress in investment, contracting and cooperation in other sectors between China and the UAE. Notwithstanding this track record, it is the growth potential that is the real story and one that will drive further cooperation and closer business ties. DIFC is proud to be a gateway of choice for Chinese firms looking into the Middle East and Africa region, and a key catalyst in the development of a new Silk Road.”
Strategic Investments in Strategic Sectors
The survey finds energy security as the primary factor driving Chinese investment in the MENA region, followed by PRC government intervention and promotion and the growth potential in the Middle East. The Top 5 strategic sectors, according to the respondents, are: oil and gas (90%), infrastructure (75%), mining (70%), financial services (50%) and construction (50%).
“Bilateral trade between China and the MENA region is booming, as China seeks to lock up natural resources and MENA is eager to purchase China’s goods and services,” said Rus Beasley, Managing Editor of Remark Asia, part of The Mergermarket Group, and author of the report.
Seventy-five percent of Chinese investors surveyed predict oil and gas prices will rise over the next twelve months. Three quarters of respondents also predict an increase in investment in renewable energies, while 25% expect investment activity to remain steady.
Saudi Arabia and the United Arab Emirates top the list of most attractive investment jurisdictions for Chinese investments. The report cites sovereign risk and political instability as the primary barriers to more widespread investment in the MENA region. Difficult legal and regulatory regimes (60%) and lack of infrastructure (50%) are the other main reasons limiting investment in the region, according to respondents.
Internationalization of the Redback
A key driver for increased cross-border investment activity is the internationalization of the renminbi, according to the survey. Nearly two thirds (60%) expect continued steady expansion of the yuan as a reserve currency and a settlement currency, while a quarter (25%) expect this expansion to occur more rapidly.
A quarter (25%) of respondents believes the RMB35 billion currency swap agreement between China and the UAE will provide a significant boost for Chinese trade and investment in the MENA region. The completion of the free trade agreement between China and the Gulf Cooperation Council (GCC), expected in 2013, will “reduce barriers, simplify trade and investment and aim to increase the value of bilateral trade more than fivefold from the current level,” according to the report.
David Miles, Chair of Latham & Watkins’ Asia practice and a partner in the Hong Kong office, commented: “The market forces driving the growth and diversification of these two markets are unstoppable, further strengthening the alliance between the two regions. As trading and investment opportunities along the new Silk Road multiply, it has the potential to redraw the global economic map.”
Notes to Editor
1 Latham & Watkins operates as a limited liability partnership worldwide with affiliated limited liability partnerships conducting the practice in the United Kingdom, France and Italy and affiliated partnerships conducting the practice in Hong Kong, Japan and Singapore. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Salman M. Al-Sudairi.
2 Latham & Watkins commissioned Remark, the market research, events and publications division of The Mergermarket Group, to conduct a survey of senior level private and state-owned Chinese corporate executives and private equity professionals in mainland China and Hong Kong who have invested in or are interested in investing in the Middle East and North Africa (MENA) region. The survey covered market forces, trends, challenges and opportunities for cross-border trade and investment between China and the MENA region. The respondents represent multiple sectors, including manufacturing, energy, mining, IT, and consumer, among others.
About Latham & Watkins
Latham & Watkins is a global law firm with approximately 2,000 attorneys in 31 offices, including Abu Dhabi, Barcelona, Beijing, Boston, Brussels, Chicago, Doha, Dubai, Frankfurt, Hamburg, Hong Kong, Houston, London, Los Angeles, Madrid, Milan, Moscow, Munich, New Jersey, New York, Orange County, Paris, Riyadh, Rome, San Diego, San Francisco, Shanghai, Silicon Valley, Singapore, Tokyo and Washington, D.C. For more information on Latham & Watkins, please visit the Web site at www.lw.com.
About mergermarket and Remark
mergermarket is an independent Mergers and Acquisitions (M&A) intelligence service with an unrivalled network of dedicated M&A journalists based in 62 locations across the Americas, Europe, Asia-Pacific, the Middle-East and Africa. Unlike any other service of its kind, mergermarket specializes in providing forward-looking origination and deal flow opportunities integrated with a comprehensive deals database – resulting in real revenues for clients. Visit www.mergermarket.com
Remark, the publishing, market research and events division of The Mergermarket Group, offers a range of services that enable clients to enhance their own profile and to develop new business opportunities with their target audience. Remark publishes more than 50 thought leadership reports and holds more than 100 events across the globe each year, which allow clients to demonstrate expertise and underline their credentials in a given market, sector or product. Remark is part of The Mergermarket Group, a division of the Financial Times Group. To find out more visit http://mergermarketgroup.com/events-publications/
Allen Wang, Beijing Office Managing Partner +86.10.5965.7041
Rowland Cheng, Shanghai Office Managing Partner +86.21.6101.6123
Bryant Edwards, Partner, Hong Kong +852.2912.2684
David Miles, Chair of Latham & Watkins’ Asia practice +852.2912.2588