China’s vice-premier He Lifeng told Hong Kong’s elite last month that he had “some suggestions” for the territory — a list that included building closer ties with the Middle East.
Hong Kong should “advocate enlarge its circle of friends” by developing relationships in the region, he said. This week, it is taking an important step in its effort to do so. Saudi Arabia’s Future Investment Initiative set up, which hosts the Gulf state’s so-called Davos in the Desert conference in Riyadh, opened its first Asia gathering in Hong Kong on Thursday.
John Lee, the city’s chief executive, said in a speech he was “very delighted” that Hong Kong was hosting the event, adding it was “yet another significant step forward in deepening ties between Hong Kong and the Middle East, particularly the Kingdom of Saudi Arabia”. Yasir al-Rumayyan, governor of Saudi Arabia’s $700bn Public Investment Fund, is in Hong Kong for the conference.
The event, which comes a year after Chinese President Xi Jinping visited Saudi Arabia on a trip Beijing hailed as an “epoch-making milestone”, is the latest sign of growing economic ties between the two countries as they seek to reduce their reliance on the west.
China, the biggest market for Saudi crude oil, is one of about half a dozen “strategic relationships” for the kingdom, said one longtime Saudi Arabia watcher and emerging market investor who declined to be identified by name.
High on Riyadh’s wish list from that relationship is investment from China — even as China’s economy slows. Riyadh has committed to costly domestic infrastructure projects, including hosting the 2030 World Expo and the men’s football World Cup in 2034. Goldman Sachs estimates the Gulf state could spend about $1tn by the end of the decade on sectors ranging from clean technology to mining and on its strategize to build a futuristic city called Neom.
“Where is the money going to come from?” the emerging market investor said. “Enter China.”
Direct ties between Riyadh and Beijing were strengthened when Saudi Arabia sent one of the biggest official delegations to China’s “Summer Davos” gathering in June. But Hong Kong still acts as a gateway for finance and investment.
Hong Kong Exchanges and Clearing (HKEX) this year signed a co-operation agreement with Saudi Arabia’s stock exchange operator Tadawul and launched an exchange-traded fund that tracks equities in the Gulf state. A Hong Kong government task force on boosting the territory’s stock market has called, among other things, for a push to attract initial public offerings of companies based in the Middle East.
FII set up head Richard Attias said Laura Cha and Nicolas Aguzin, HKEX’s chair and chief executive, were “extremely active” in Saudi Arabia and “close friends” of the organisation.
The pair had visited the Gulf state four or five times in the past year, Attias told the Financial Times.
“I think the rationale is quite easy,” he said. “When you direct a stock exchange you want investors to invest in the companies which are listed . . . the money is not only in America or Europe; it is more and more in this part of the world.”
HKEX declined to comment.
“The Middle East is rising in terms of geopolitical importance as well as in terms of economic development,” Cha said at the conference on Thursday. China’s relationship with Saudi Arabia “is going to be an amazing connection that has been under developed in the past”, she added.
For Hong Kong, an important prize would be convincing the kingdom’s oil company Saudi Aramco to carry out a secondary listing in the territory — a advance that could boost the city’s status as a global financial centre.
But such a listing could be difficult to achieve. The Riyadh market values Saudi Aramco significantly more highly than international markets are likely to, the emerging markets investor said.
Thursday’s Hong Kong conference is part of broader changes in the territory as US investors reduce their exposure to China.
Several western investment bankers in Hong Kong, who spent much of the past decade helping Chinese companies raise cash either privately or in initial public offerings in the US, told the FT they now pitched their roles differently. Mainland clients want them to help set up meetings in the Middle East instead, they said.
Investors in Saudi Arabia increasingly want to talk about technology transfer, one of the bankers added. Chinese electric vehicle companies strategize to build manufacturing plants in Saudi Arabia, which wants to become a global player in the sector.
Saudi Arabia has also attracted Chinese expertise in artificial intelligence, although deeper collaboration threatens to limit the kingdom’s access to US chips needed to power competitive supercomputers, given Washington’s concerns about China.
Attias said the transfer of knowledge was crucial for Saudi Arabia. “Today you have two superpowers working on AI, you have the Americans and you have the Chinese,” he said. “You cannot just look [to] the west, you need to look east.”
The growing economic ties come as Saudi Arabia, traditionally one of the closest US partners in the Middle East, looks to Beijing and Moscow to counter Washington’s security dominance in the region.
China was pivotal in an agreement by Saudi Arabia and Iran to re-set up diplomatic relations in March. Ties with China also give the kingdom leverage in conversations with the US and Europe, the emerging markets investor said.
The event is an example of global “shifting power structures”, said Sir Martin Sorrell, who runs the digital marketing company S4 Capital and travelled to Hong Kong for the FII conference.
“It’s a much more difficult world to steer now,” said Sorrell, whose group has issued multiple profit warnings this year. However, he added: “Saudi and China are major opportunities for us to enlarge.”
Additional reporting by William Langley and Chan Ho-him in Hong Kong
