x Abu Dhabi, UAEFriday 19 January 2018

KIA takes stake in China growth

The Kuwait Investment Authority has opened an office in Beijing, aiming to profit from the fast growth of the Chinese economy, which recently passed Japan's as the world's second-largest.

The KIA put $700m into the Agricultural Bank of China’s IPO last year. Gulf funds are increasingly targeting the economically high performing country.
The KIA put $700m into the Agricultural Bank of China’s IPO last year. Gulf funds are increasingly targeting the economically high performing country.

The Kuwait Investment Authority (KIA) has opened an office in China as Gulf sovereign wealth funds seek to profit from the country's rapid economic expansion amid growing turmoil in the euro zone.

The sovereign wealth fund announced plans for a China office in 2004 but made it official only last week.

"China has enormous potential for the KIA's business opportunities on the back of its sustained economic growth," Fahad Al Shatti, the chief representative of the office, said in a release from Kuna, Kuwait's state news agency. "The Chinese economy is growing in a stable and sustainable way, which is in line with KIA's long-term investment horizon."

The move into China comes as the KIA and other Gulf funds, including the Qatar Investment Authority, target the country. Qatar and Kuwait have partnered on several Chinese investments already this year and last.

China's economy is pegged by the IMF to grow by 9.5 per cent this year and 9 per cent next year. That is one of the fastest GDP growth rates in the world, and contrasts starkly with projected growth of below 3 per cent for the US and most European countries, which are muddling through an extended period of economic trouble.

The KIA, which is estimated to have about US$200 billion (Dh734.62bn) of assets, has already made significant investments in China, including in several recent public offerings by formerly state-controlled companies.

In a deal then worth more than $700 million, the KIA invested in the initial public offering (IPO) of the Industrial and Commercial Bank of China in 2006. It put $700m into the IPO of the Agricultural Bank of China last year and was part of a consortium of funds that invested $900m last month in the IPO of Citic Securities, China's largest stock brokerage.

The KIA's investments in China were now worth about $10bn, Mr Al Shatti said, versus $2bn a decade ago.

About $5.6bn of those investments were in mainland China, versus nothing five years ago, he told Kuna. The Beijing office is the KIA's first foray overseas since opening a branch in London 50 years ago.

It is one of the Gulf region's oldest sovereign funds, investing surplus oil revenues in international markets.

Analysts have long been pointing to a focus by sovereign wealth funds on Asia and emerging markets generally as the balance of economic might shifts away from traditional powerhouses of the US, Europe and Japan.

"[Sovereign funds] have turned their eyes toward emerging markets," the Monitor Group, a think tank based in London, said in a report on fund activity last year. "Asia in particular - and not just China, but also India, Singapore, Indonesia and Malaysia - has received a large influx of [fund] investment."

The KIA plans to use the Beijing office as a springboard for investments, not just in China but across the Far East, Mr Al Shatti said, as well as to manage important relationships with the Chinese government.

"[The office] closely works with our head office and mainly serves as its platform for exploring lucrative investment opportunities, with an initial focus in China, but also in the Far East," he said. "In addition, the Beijing office is heavily tasked with strengthening the fund's ties with the Chinese government and companies so that we can be among the first to grab any new opportunities."

He added that Kuwait's exports of crude oil and other petroleum products to China have reached $10bn annually, up from $400m in 2004.

Addressing the appreciation of the yuan against other global currencies - a rise that countries trying to compete with China's exports have encouraged - Mr Al Shatti said it was not a problem for the KIA.

"As we are a long-term investor, the more appreciation of the yuan they want, the better return we will get from our long-term investments in the future," he said.