Why China-Middle East corridor promises mutual benefits

Middle-Eastern countries’ goal of diversifying their economies amid the energy transition under way globally presents opportunities for accelerated investments between the region and China, with Hong Kong as a gateway.

The need for the Middle-Eastern nations to invest their oil wealth – the region’s sovereign wealth funds have trillions of dollars in investment assets¹ – to create the infrastructure needed for their transformation, could produce business opportunities for companies from China.

At the same time, Mainland Chinese and other international investors keen to participate in new projects in the region could use Hong Kong’s financial infrastructure and know-how to gain that exposure.

An expert panel discussing these possibilities for the China-Middle East corridor at the HSBC Global Investment Summit considered Saudi Arabia’s NEOM City² as a case in point. Envisaged as a futuristic city under the Kingdom’s Vision 2030 plan with an investment of around US$500 billion³, China could play a key role in turning that vision into reality.

“Building this massive infrastructure does not only need massive funding, but also the skills and expertise of building infrastructure. And we all know that China has passed through the phase of massive infrastructure. We built a lot of new cities in mainland China in the past,” said Chen Ding, CEO of CSOP Asset Management.

Ms. Ding also highlighted China’s expertise in alternative energy technologies such as solar panels, electric vehicles and battery storage technologies among investment avenues for Saudi Arabia, the Middle-East’s largest economy.

There is also a case for investment flows in the opposite direction, given Hong Kong’s stature as an international financial centre, and the Hong Kong stock exchange’s experience in the cross-border trading links known as Stock Connect, which link to stock markets in Shanghai and Shenzhen.

Wilfred Yiu, Deputy CEO at Hong Kong Exchanges & Clearing, which owns the Hong Kong stock exchange, shared his experience attending a capital markets forum in Riyadh earlier this year, and described market developments in Saudi as “very significant and meaningful.”

A framework for working together already exists. The HKEX last year signed a memorandum of understanding with the Saudi Tadawul Group Holding Company to explore cooperation in a number of areas⁴.

“The question and the job for a lot of us to do and explore further on is actually how can we bridge these capital opportunities better together and how can we leverage Hong Kong as that hub for connecting the capital between the mainland and also with the rest of Middle East,” Mr. Yiu said.

CSOP, meanwhile, manages the CSOP Saudi Arabia ETF, an exchange traded fund that is listed in Hong Kong and tracks the FTSE Saudi Arabia Index⁵.

“When we launched this product on the Hong Kong stock exchange, we got a lot of queries from our clients to say, ‘when can you guys bring this to Shanghai stock exchange and to Shenzhen stock exchange, so we can buy it,’” CSOP’s Ms. Ding said. “We think [the ETF] certainly showcases that Hong Kong can not only play the role of a gateway to Mainland China, but also to the Middle East and other regions.”

The two-way flows between the Middle East and Asia are likely to continue, driven by the increasing friendship between the two regions, according to Abdulfattah Sharaf, Chairman, HSBC Bank Middle East Limited. He shared the increased amount of financial activity as a sign of economic buoyancy in the region.

The region has seen around 120 initial public offerings (IPOs), raising a total of US$66 billion, with IPOs for half of that amount led by HSBC itself, Mr. Sharaf said.

“I think the opportunities are huge,” he said.