This article explores sovereign wealth fund investments by Gulf Cooperation Council member states in China’s equity market. Using data from Chinese stock exchanges, we analyze patterns of shareholding over two decades, across different sectors and among distinct funds, and compare them to their non-Gulf counterparts. We reveal a gradual upward trajectory in both the scale and diversity of investments by Gulf funds, indicating growing engagement with the Chinese equity market. We anticipate a continuation of current trends, albeit with larger volumes and potential expansions into technological and emerging sectors that align with Gulf interests. We project that the deepening financial linkages between China and the Gulf could give rise to a mini petro-yuan system operating under the dominance of the American dollar. This does not presage a transformation in China-Gulf relations but should be understood within the increasing complexity of their broader economic ties. The article is part of a special issue examining the responses of Gulf countries to rising Sino-American competition, edited by Andrea Ghiselli, Anoushiravan Ehteshami, and Enrico Fardella.
ANALYZING GULF SOVEREIGN WEALTH FUNDS
GCC SWFs are powerful, state-controlled vehicles with vast resources. They wield substantial influence as key drivers of change in financial linkages.18 As a result, they are among the few actors that, by outclassing all other public and private entities, are capable of altering capital-flow patterns and dynamics between the Arabian Peninsula and China. Analyzing their past and present footprints in China, in conjunction with their possible future, has the potential to offer a more nuanced reading of the trajectory of China-Gulf relations, not only in the economic domain, but also in the areas of politics and security. In what follows, we provide an overview of these funds, explain the rationale behind our focus on their activities, and discuss the sources used in investigating their presence in China.
Overview
The GCC member states manage 20 SWFs, including some of the world’s most influential. As of 2023, the Abu Dhabi Investment Authority of the UAE is the Middle East’s largest such fund, having once been the biggest in the world based on total assets under management, currently $853 billion. The next largest are the Kuwait Investment Authority with $803 billion in assets, and Saudi Arabia’s Public Investment Fund (PIF) with $776 billion. Behind them is the Qatar Investment Authority, holding assets totaling $475 billion. The four investment funds are ranked among the world’s 10 largest SWFs, measured by assets under management (see Table 1).19
| Fund | Assets under management | Mandate |
|---|---|---|
| Abu Dhabi Investment Authority | $853 billion | Savings fund |
| Kuwait Investment Authority | $803 billion | Savings fund |
| Saudi Public Investment Fund | $776 billion | Development fund |
| Qatar Investment Authority | $475 billion | Savings fund |
Source: Juergen Braunstein, “Domestic Sources of Twenty-first-century Geopolitics: Domestic Politics and Sovereign Wealth Funds in GCC Economies,” New Political Economy 24, no. 2 (2019): 197–217. Note there is heterogeneity within funds of the same Gulf country. For instance, Qatar Holding LLC and Qatar Diar have a development mandate, as do Abu Dhabi’s Mubadala and IPIC.
These GCC funds share two major characteristics. First, their sizable assets under management—approaching nearly $4 trillion for all such funds across the member states—are largely derived from surplus hydrocarbon revenues and transfers of state assets into their control.20 Given current projections in energy prices, in addition to the endurance (and proliferation) of the sources of global geopolitical instability that drive up revenues, their combined assets under management will likely continue to grow well into the current decade. Second, these funds are being leveraged by GCC governments as critical instruments of domestic economic statecraft (diversification, technology upgrades, and revenue generation) and foreign diplomacy (partnership- and influence-building activities). Put simply, they are instruments of state power deployed across a number of interlinked domestic and international arenas.21
Notwithstanding these unifying features, there are differences among the SWFs in relation to their size, fund governance, and investment strategies (i.e., host destinations and asset classes). With respect to the latter, for instance, the date of establishment and the classification of a fund can shape its preferred global approach concerning the deployment of capital. SWFs from the pre-2000s era, best exemplified by KIA (established in 1953) and ADIA (established in 1976), have reputations for making conservative and low-risk investments in fixed-income securities like American Treasury bonds.22 This is because many of these older funds have a savings mandate aimed at ensuring the emergence of a sustainable, post-oil future. The KIA, for example, oversees the General Reserves Fund, Kuwait’s main depository for oil earnings, and the Future Generations Fund, a savings account created in 1976 that receives a minimum of 10 percent from the state’s annual revenue.23
By contrast, the newer generation of GCC SWFs, such as Qatar’s QIA (established in 2005) and the UAE’s Mubadala Investment Company (established in 2017), have benefited from the prolonged period of high energy prices since the mid-2000s. They are more assertive in their investment strategies, holding international portfolios that include riskier yet higher-yielding asset classes. These encompass private equities, hedge funds, and stakes in publicly listed firms.24 Many of these funds have moved to acquire (or are in the process of acquiring) stakes in relatively unstable and vulnerable economies across the Global South, valued in billions of dollars.25 One should not, however, overemphasize the significance of when a fund was created: Saudi Arabia’s PIF, founded in 1971, underwent such extensive restructuring starting in 2015 that its governance and investment strategies resemble those of the new generation of SWFs.26
Beyond their establishment dates, classification also plays a role in shaping a fund’s investment strategy. Among SWFs, there are portfolio funds, such as ADIA, that pursue diversified asset classes, and strategic funds, like QIA and PIF, which have been gaining traction in the region as they funnel investments into industries that align with the developmental goals of their national governments.27 Some strategic funds, such as Abu Dhabi Developmental Holding (established in 2018) and Kuwait’s Ciyada Fund (announced in 2023), are explicitly domestic. However, many others, including Mubadala and QIA, retain both domestic and international portfolios, using these diverse connections to accelerate the development of strategic sectors within their national economies.28
The PIF illustrates this dynamic. To pursue the objective of Saudi Arabia’s Vision 2030 of realizing techno-industrial development in the kingdom, the fund has marshaled its assets to persuade global corporations to establish advanced production facilities while also seeding and incubating a growing number of domestic companies and startups. Toward that end, the PIF has earmarked an annual investment of nearly $40 billion in the kingdom’s economy.29 Unlike other SWFs, the bulk of PIF’s investment (nearly 79 percent of its total) is domestic, indicating a strategic interest in supporting and influencing key sectors within the Saudi economy, including fostering new industries like gaming, and supporting giga-projects like the planned high-tech urban area NEOM.30
Why Study Gulf Sovereign Wealth Fund Capital Flows?
As we have seen, GCC SWFs are powerful, state-controlled vehicles with vast resources. There are other actors, including state-owned enterprises like Saudi Aramco, that also funnel substantial investments around the globe. However, we opt to focus on SWFs for several reasons. First, analyses of Gulf FDI into China are dominated by the activities of such state-owned enterprises. Second, while such enterprises can reflect the strategic calculations of Gulf elites, they are principally defined by the search for energy security and locking in consumer markets over the long term.
Unlike corporate-level investments that may represent individual companies’ strategies, Gulf SWF equity investments reflect broader economic policies driven by government decision making. Tracking the Gulf SWF investments speaks to the strategic orientation of the GCC at the macroeconomic level, showcasing members’ intents to diversify portfolios and strengthen economic ties with China. Thus, this dataset serves as an illuminating and underutilized indicator of state-driven investment patterns. By examining the evolving financial linkages created by SWFs, we can understand to what extent China is coming to occupy a status in the Gulf, similar to that of the United States, as a military-financial power.
Why do we tie American hegemony in the Gulf to the capital flows of SWFs? The GCC has a longstanding practice, dating back to the mid-1970s, of using investments to build and maintain ties with powerful extraregional actors, including the United States and, to a lesser extent, the United Kingdom. This practice constitutes one facet of a larger strategy—which could be dubbed petro-dollar interdependence—where Gulf states have committed to selling hydrocarbon resources in American dollars and recycling accumulated surpluses through armament purchases and debt-financing, all in exchange for implicit security commitments. The origins of this arrangement are complex, tied to the breakdown of the Bretton Woods system, the substantial increase in crude oil prices after the 1973 Yom Kippur War that brought about the second tafrah (boom age), and growing geopolitical threats to the GCC following the British departure from the region in 1971. But the practice was nonetheless pivotal for the transformation of the global financial landscape and the consolidation of the dollar’s supremacy.31 Notwithstanding their mandates and searches for profit, the contemporary acquisitions of GCC SWFs in markets like those of the United States can be interpreted as means for sustaining American political-security guarantees to the Gulf. Is a similar dynamic unfolding with China?
Data on Gulf Sovereign Wealth Funds
It is challenging to obtain comprehensive information on Gulf transactions. Most governments do not publicly disclose information on SWF assets, ownership percentages, and holding destinations. This is especially pronounced in the GCC, where there is a lack of transparency in financial disclosure, in addition to the fact that they route some of their international investments though overseas fund managers and vehicles.32 This creates an impediment to rigorously studying SWF investments from the Gulf by using causal inference or other statistical estimation methods.33 We do not, as such, have a sense of the total size of GCC capital in circulation within China.
To break into this black box and navigate the constraints, we rely on publicly listed information obtained from the China Stock Market and Accounting Research Database (CSMAR) to capture investments made by SWFs and subsidiary funds, such as Qatar Holding LLC (for the QIA).34 This database is a reliable source of accounting information on publicly listed Chinese firms in the Shenzhen, Shanghai, and Hong Kong stock exchanges with quarterly and annual financial statements. We used the database to obtain the stock codes of listed companies, institutional shareholder names, the numbers and percentages of shares held by institutional investors, their industrial classifications, and announcement dates, among other relevant variables. The resulting dataset includes a substantial 21,780 observations representing individual shareholding records.35 These do not cover all details concerning GCC capital in China, but they give us a general sense of its size and growth, over a discrete period and as propelled by a few select Gulf funds. The CSMAR’s Institutional Investor Database is the source for all the tabular and visualized data in this article (Figures 1–6 and Tables 2–4).
Sectoral investments of the Abu Dhabi Investment Authority
Note: The histogram indicates the top 10 industries in which ADIA has invested over the years. The bars in varying shades of gray are arranged in ascending order.
| Stock Code | Company | Investor | Rank | Industry |
|---|---|---|---|---|
| 601595 | Shanghai Film | KIA | 3 | Broadcast, TV, film |
| 300533 | Shenzhen Bingchuan Network | KIA | 3 | Software/IT services |
| 600138 | China CYTS Tours Holdg | KIA | 4 | Business services |
| 600867 | Tonghua Dongbao Pharma | ADIA | 4 | Medicine manufacturing |
| 603868 | Shanghai Flyco Elect Appli | KIA | 4 | Electric machines manufacturing |
| 603998 | Hunan Fangsheng Pharma | KIA | 4 | Medicine manufacturing |
| 89 | Shenzhen Airport | KIA | 4 | Air transport |
| 887 | Anhui Zhongding Sealing Pts | ADIA | 4 | Rubber and plastic products |
| 2020 | Zhejiang Jingxin Pharma | KIA | 4 | Medicine manufacturing |
| 600183 | Shengyi Tech | ADIA | 5 | Computer/electronic manufacturing |
| Population | N | Mean (%) | Median (%) | Standard deviation (%) | Min (%) | Max (%) |
|---|---|---|---|---|---|---|
| All QFIIs | 21780 | 45.86 | 42.00 | 25.51 | 0.02 | 99.97 |
| Gulf QFIIs | 1116 | 50.68 | 50.00 | 24.28 | 0.88 | 99.00 |
Note: The table presents summary statistics for QFIIs in China between the years 2003 and 2023. Calculations for the summary statistics are standard, and the output was obtained using the respective holding proportions of QFIIs. For instance, the percentage for the average shareholding was calculated by adding up the individual values of QFII holding proportions for the Gulf investments group, then dividing that sum by the total number of observations in that group, which yields the average/mean proportion held by Gulf investors. A similar process applies for Table 4.
| Shareholder | N | Mean | Median (%) | Standard deviation (%) | Min (%) | Max (%) |
|---|---|---|---|---|---|---|
| Abu Dhabi Investment Authority | 595 | 46.03 | 43.60 | 23.95 | 0.88 | 99.00 |
| Kuwait Investment Authority | 512 | 56.83 | 57.00 | 22.88 | 3.00 | 99.00 |
| Qatar Holding LLC | 9 | 7.44 | 8.00 | 1.01 | 5.00 | 8.00 |
Note: See Table 3 for an explanation of the methodology.
THE PAST OF GULF EQUITY ACQUISITIONS IN CHINA
Over the last two decades, the presence of GCC SWFs in the Chinese equity market has been dominated by the UAE (through ADIA), Kuwait (KIA), and Qatar (Qatar Holding LLC). Between 2008 and 2012, the three obtained qualified foreign institutional investor (QFII) certification. Launched in 2002, the certification allows foreign investors, through custodial banks and other entrusted institutions, to trade in A-share stocks denominated in renminbi on the Shenzhen or Shanghai exchanges.36 As part of an ongoing process of internationalizing the Chinese equity market, QFII enables foreign investors to circumvent capital controls and buy stocks directly, albeit within an adjustable, capped quota set by the State Administration of Foreign Exchange. Since 2019, the quotas have been effectively abolished as part of a broader reform effort by China.37 In subsequent years, the range of sectors accessible to foreigners expanded, and procedures for obtaining QFII certification were simplified.38
The Abu Dhabi Investment Authority’s entry into China goes back to the early 1990s, but it was only in 2003 that it achieved a milestone in becoming the first GCC SWF to enter the Chinese equity market. During the last quarter of that year, it acquired majority stakes in iron and steel, real estate, and electronic-component companies. Over time, ADIA further diversified its investments across an array of sectors, with a significant focus on the pharmaceutical industry (see Figure 1). A corresponding legend to that figure serves as a guide, aligning with the precise order of industries represented by the bars. Since gaining QFII status, ADIA has applied for increases to its quota, which reached nearly $2.5 billion after 2015.39 It has maintained an office in Hong Kong since 2016 and recently opened another one in Beijing, though the function of the latter one appears to be tied to attracting investments to the UAE as opposed to enabling greater access to the Chinese market.40
The Kuwait Investment Authority made its first acquisition in Chinese stocks in 2012.41 Upon gaining access to the Chinese equities market, KIA became a major shareholder in chemicals, pharmaceuticals, and software and electronics-manufacturing firms (see Figure 2). By 2023, it was a top-10 shareholder, and the largest GCC investor, in major entertainment companies like Shanghai Film Co. for motion pictures, online games, and tourism (see Table 2). KIA maintains significant holdings in Shenzhen Airport and continues to invest in pharmaceutical companies. ADIA and KIA share an interest in pursuing stakes in the pharmaceutical industry, which represents the highest percentage of their cumulative investment share over the years. Moreover, like ADIA, KIA has sought to increase its QFII quota and opened a short-lived office in Beijing and another that still exists in Shanghai—its only overseas footholds besides London.42
Unlike the investments of ADIA and KIA, which have been involved in the Chinese equity market for a decade, those of Qatar are relatively superficial and short-lived. For a brief duration, from 2013 to 2015, Qatar Holding LLC was a primary shareholder of the China Petroleum & Chemical Corporation. This limited engagement in China can be explained by the geographic orientation of QIA’s international portfolio, which skews heavily toward European markets (though this could also describe other Gulf funds).43 However, there have been signs of renewed interest by QIA in engaging with China once more. For instance, it opened a Singapore office with an Asia-Pacific focus in 2021.44
Moving from this macro view of the GCC SWFs’ footprint in China, let us scrutinize their stockholding patterns in more detail: How do they compare to other non-Gulf QFIIs? And what are some of the distinguishing features of their individual investment patterns in China? Based on the available data, Gulf SWFs have an average shareholding of 50.68 percent, indicating a slightly higher stake than the broader community of foreign institutional investors (see Table 3). Similarly, the median shareholding is 50 percent, a central tendency notably higher than the international average. However, a standard deviation of 24.28 percent hints at a shareholding spread around the mean in line with the general international pattern of investments in China.
The longitudinal view of ownership reveals an interesting trend. In recent years, investors from the GCC have significantly increased their shareholding proportions in China. Not only has the average ownership in the top industries risen from 25 to almost 75 percent, but this growth has also been accompanied by an expansion in the number of sectors of interest. As a result, there is now a strong upward trend in the ownership percentage of Gulf investors across the Chinese market, as illustrated by Figure 3.
How do individual GCC SWFs compare with each other? The Gulf countries are mainly represented by three QFIIs in the Chinese equity market: ADIA, KIA, and Qatar Holding LLC. Figure 4 plots their individual shareholding percentages over time. ADIA and KIA have large portfolios, with 595 and 512 holdings, respectively, and their stakes are characterized by substantial variability, at times nearing complete ownership at 99 percent (see Table 4). ADIA’s stakes average around 46.03 percent, and KIA has a slightly higher mean stake of 56.83 percent. On the other hand, Qatar Holding LLC, with just nine holdings, appears far more conservative, maintaining a tight band of stakes ranging from 5 to 8 percent. The limited variation in Qatar Holding LLC’s stakes, as evidenced by a mere 1.01 percent standard deviation, contrasts with the broader stake fluctuations seen with ADIA and KIA.
How diverse have the investments of these GCC SWFs been? One method of gauging their long-term interest in the Chinese market is to calculate the amount of diversification in their investments based on the number of firms and industries in which they have invested. Figures 5 and 6 show a clear, strong, positive trend: The number of firms increased from a mere three in 2003 to more than 80 in 2022. Likewise, the number of industries increased from three in 2003 to 33 in 2022. Both firms and industries witnessed temporary declines after 2015, but the numbers surged back in the period leading up to 2022.
Examining Gulf SWF investment patterns in China presents a multi-layered and evolving landscape. It is evident that almost all of these investments are carried out by the funds from the UAE and Kuwait. The KIA has maintained a consistent level of ownership in several industries, while ADIA has shown the most dynamic growth, expanding rapidly both in size and in the number of participating industries. Qatar Holding LLC is quite reserved, indicating the contrasting investment strategies embraced by these Gulf SWFs.
The uptick in diversified investments from the GCC SWFs, in terms of both firms and industries, points to growing maturity in engagement (at least by ADIA and KIA), as well as a budding strategic, long-term commitment to the Chinese equity market. This trend, while briefly disrupted after 2015—possibly due to a decline in oil prices in conjunction with the negative impact of the pandemic—underwent a resurgence in 2021. The data show that GCC member states, led predominantly by the Emirati and Kuwaiti funds, are keen on harnessing the vast potential of the Chinese market. As these investment patterns continue to evolve, they will play a crucial role in shaping the broader future economic landscape of capital circulation.
THE PRESENT OF GULF EQUITY ACQUISITIONS IN CHINA
The gradual and upward trend in the size and diversity of investments of well-established GCC SWFs in China over the previous decade was met in 2021–2022 with a significant jump, from three to nine, in the number of Gulf entities (including private equity companies, pension funds, ADIA subsidiaries, and the Kuwait Investment Office) applying for and receiving QFII certification.45 The most notable applicant among these is the PIF. Though it arguably “entered” the Chinese equity market through its partnership with SoftBank in 2016, the Saudi SWF—despite its global ambitions and reach—is only now beginning to directly deploy capital into China.46 Signaling the seriousness of its intentions, the PIF opened an office in Hong Kong in February 2022.47 The following year, the Saudi Tadawul Group, which manages the Saudi stock exchange, reportedly entered into tentative negotiations with the Hong Kong, Shanghai, and Shenzhen exchanges, exploring cross-listing possibilities.48 Such agreements could increase access to the Chinese equity market for Gulf SWFs, as well as for other GCC-based public and private funds.
This surge has multiple causes. Chief among them are: years of positive China-Gulf political and economic relations, which have consolidated a perception of China among GCC elites as a trustworthy techno-economic partner; the revitalization (and renewed mandate) of globally minded Gulf SWFs; and China’s own struggle to attract Western FDI in the post-Covid period.49 This constellation of conditions appears to have created an opportune moment in the early 2020s for the GCC funds to test the waters and explore investment possibilities in ways that could lead to a noticeable influx of Gulf capital into China over the coming decade. The moves undertaken by the Gulf SWFs so far indicate that the probability for this is high, though we anticipate that their capital flows will likely follow the same (somewhat) conservative patterns and sectoral focuses that marked the 2010s, albeit in larger volumes and potentially with forays into technological and industrial sectors of interest to Gulf state actors.
Why do we expect this circumscribed growth? There are China and Gulf-specific factors to consider. First, while QFII certification and the China-Hong Kong Stock Connect function have become important channels for facilitating GCC investment into the mainland,50 they suffer from inherent limitations that cap the source and size of potential capital flows.51 The very existence of these channels highlights the stringent capital-controls regime in China, which, though being relaxed for foreigners in certain contexts, will likely remain in place as long as the party-state continues to exist.52 The bottom line, at least in the era of President Xi Jinping, is that politics and ideology will trump a growth-centric (and technocratically managed) vision of economics, despite mounting pressures otherwise.53 The crackdowns and disciplinary campaigns launched against the fintech, gaming, and educational-tutoring sectors reflect this logic, which has created losses for SoftBank and, consequently, the PIF.54 China is, in the final assessment, a politically fraught country where capital flows are strictly controlled and equities are susceptible to swings in policy. These restrictions will not disappear any time soon.
This brings us to the second variable, the “worldview” of the Gulf SWFs and how they appraise China. The leadership and the rank and file of these funds are populated with individuals tied to Western financial markets, which may partly explain the funds’ preference for the North American and European equity markets.55 This is coupled with what appears to be a persistent lack of familiarity with the movers and shakers of the Chinese financial world, though there are, anecdotally, signs that it is changing in the case of the UAE and Saudi Arabia.56 This means Gulf SWFs and their investment strategies are relatively susceptible to negative Western assessments surrounding the conditions of the Chinese economic and political environment—assessments that have already contributed to an exodus of Western capital from China.57 Such appraisals might very well affirm the longstanding tendency among these funds of maintaining a disproportionate focus on developed (Western) equity markets, an orientation their own roadmaps show little sign of moving away from.
We do not want to overstate the power and hold of this worldview. The movement of Gulf SWF capital is strongly influenced, if not entirely determined, by changing political and strategic considerations from the top, which have displayed skepticism, at times, toward the received wisdom of Western interlocutors. Their perceptions and calculations are, in other words, malleable. The commitment of the GCC leadership to strengthening ties with China, for at least the short to medium terms, will likely galvanize greater involvement in the Chinese equity market—though within the narrow parameters of existing capital controls (and other barriers), profitability, and the safeguarding of the national interest.
The signs for this are ample. At the 10th Arab-China Business Conference in 2023, Saudi Minister of Investment Khalid al-Falih stated that he viewed China-Saudi relations as “going into a significant shift from trade to a core investment relationship.”58 The Gulf SWFs’ procurements of QFII certification in 2021 and 2022, in conjunction with the accelerating trend among many of them to build China teams, are suggestive of this line of thinking, as is the increasing frequency of deploying ministerial-level investment and technology delegations to Beijing and Hong Kong.59 The politically supported China-GCC free-trade agreement currently under negotiation, though undermined by serious differences over petrochemical tariffs, is also understood in terms of facilitating investments.60
CONCLUSION
The anticipated increase in GCC capital flows to China could be buoyed further by, and perhaps even provide an impetus for, a more extensive utilization of the renminbi (RMB) as the de facto currency of trade. Over the past decade, many GCC states have become involved in Bond Connect schemes, established local currency swap agreements, set up regional RMB clearing houses, and issued RMB-denominated debt.61 There is evidence that some elements within the Chinese and (less so) Gulf leaderships are advocating for the use of the RMB in core pillars of their economic relations. At the China-Arab summit in December 2022, Xi called on the GCC to consider selling hydrocarbons in RMB, and in March 2023, the UAE became the first Gulf state to make such a sale—of its liquified natural gas—through the Shanghai Petroleum and Natural Gas Exchange.62
As China is effectively one of the largest consumers of Gulf hydrocarbons (Oman, for instance, exports more than 70 percent of its energy to the Chinese market), there is a credible basis for imagining the GCC states in the future recycling accumulated RMB from hydrocarbon sales into the Chinese equity market via their SWFs—in addition to using them for purchases of Chinese consumer and industrial products. Moreover, currency swaps are becoming all the more frequent.63 This provides an impetus for the formation of a mini petro-yuan system. We emphasize “mini,” as we neither imply nor foresee that it would lead to de-dollarization; almost all GCC currencies are pegged to the American dollar (Kuwait’s is pegged to a dollar-dominated basket). Their economies would suffer from the uncertainty created by such a move when economic stability, during a time of considerable transition in the Gulf and instability in the surrounding region, is given the utmost priority. To do otherwise would also send a damaging political message to the United States, with serious security implications, and would probably invite pressures from other GCC hydrocarbon customers, such as India and Japan, to consider sales in their own currencies.64 There is also the problem of the limited utility of the RMB, due to capital controls and the lack of immediate convertibility, in engaging with economies beyond that of China.
We contend therefore that if a limited petro-yuan system were to appear, it would likely be part of a broader basket system wherein the American dollar retains its centrality. Under such a scenario, Gulf SWFs would deploy their accumulated holdings of both dollars and renminbi into the Chinese equity market, as permitted by the QFII certification. The specifics of how these baskets would be composed, weighted, and balanced, if this transition were to occur, would undoubtedly be a subject for another extensive debate. However, at this time and as clearly conveyed in global forums, the dollar well serves the purposes of GCC elites, and the likelihood of any shift is minor.65 Therefore, we do not view these financial entanglements as presaging a fundamental transformation in China’s status and role within the Gulf region, but they should be read within the narrow confines of the gradual complexification of China-GCC economic relations. If anything, China-GCC ties, due to their political economy, in conjunction with the nature and geopolitical approaches of their ruling systems, have likely reached their zenith.66 Whatever new developments might appear—as represented by these capital flows—will unfold within the boundaries set by the inherent limitations of their relationship.
What of Sino-American competition and its impact on the trajectory of GCC capital flows into China? As noted, Gulf SWFs operate with a profit-maximizing objective, yet they are not immune to political motives. They are controlled and managed by the state and often include members of the royal family in their leaderships. As such, it would be an oversimplification to assert that SWF investment portfolios exist in isolation from geopolitics. Equally, it would be an overreach to establish a causal link between Sino-American rivalry and the portfolios of GCC SWFs. The Gulf’s two-decade investment in China, in addition to the recent turn, reflects a sense of pragmatism that is driven by the search for lucrative opportunities afforded by the Chinese market, especially in the post-pandemic era. At the same time, these flows will be shaped by structural realities in China itself, the views of Gulf elites, and—we stress, potentially—a mini petro-yuan system that operates within a wider context that maintains the primacy of the dollar. As such, financial linkages will grow in volume but likely follow in the footsteps of the ADIA, KIA, and QIA in the 2010s.
GCC leaders do not perceive their investments in either China or the United States as zero-sum, recognizing the potential for multiple winners and avoiding taking sides. They see the Chinese market, as well as the broader constellation of Asian economies, as promising sources of future growth and innovation.67 As illustrated by our graphs, Gulf SWFs have diversified their portfolios in China through investing in emerging industries, highlighting their long-term interests and approaches. More importantly, they do not view engagement with China as being mutually exclusive of relations with the United States, as they recognize that each region has its distinct advantages and drawbacks—in fact, some continue to display strong preferences for the United States.68 In light of this, as well as recent precedents, the GCC is unlikely to respond to American pressure on this issue unless something fundamental were on offer that is tied to such decoupling—perhaps a formal security treaty, though such a development faces dim prospects, in any case.
Accordingly, we expect Sino-American competition to have a limited impact on Gulf capital flows in the 2020s, which we believe will grow within the constraints noted above. In fact, this will likely take place in conjunction with the development of new synergies between Gulf and Chinese capital via promising co-investment initiatives, akin to what is happening with Singapore and India, in areas like renewables.69 In all, the GCC appears poised to continue occupying a liminal position in an increasingly multipolar global order wherein its member states will seek to hedge, diversify, and pursue an omnibalancing approach between not only the United States and China, but other great powers as well.70
Middle East Policy is fully accessible through the Wiley Online Library
Click below to subscribe to the online or print edition of Middle East Policy and gain access to all journal content.