SHANGHAI/HONG KONG - Qatar's sovereign wealth fund has agreed to buy a 10% stake in China's second-largest mutual fund company, two sources said, underscoring Beijing's increasing ties with the Middle East amid rising tensions with the West.

Qatar's proposed investment in China Asset Management Co (ChinaAMC) comes amid a flurry of activities between China and Gulf countries to deepen political, economic and financial ties, as geopolitical tensions heighten around the Gaza War and the Russia-Ukraine conflict.

China has become one of the major importers of liquefied natural gas (LNG) from the Middle East, firming up ties with Doha as the nation pushes for a massive production expansion project.

Middle East sovereign wealth funds have invested $7 billion in China since June last year, five times the amount seen during the previous 12 months, according to industry data provider Global SWF.

The Qatar Investment Authority (QIA) has agreed to buy the stake in ChinaAMC from investment firm Primavera Capital, said the sources who have knowledge of the situation.

The sources declined to give financial details of the deal, but Chinese brokerage Citic Securities, which owns roughly 62% in ChinaAMC, said in March that it had decided to give up its right to purchase the 10% stake currently owned by Primavera, worth at least $490 million.

The Qatar sovereign fund's proposal, which has not been reported previously, has been submitted for Chinese regulatory approval, said the sources, who declined to be identified as they were not authorised to talk to the media.

The China Securities Regulatory Commission (CSRC) said last week that it decided on May 23 whether to accept an application from ChinaAMC involving transfer of a stake bigger than 5%, part of the formal approval process.

The regulator did not name any buyer or seller of the stake.

Last week, Chinese President Xi Jinping told the China-Arab States Cooperation Forum in Beijing that the world's second-largest economy was seeking to strengthen its relations with Arab states.

The improved ties also come amid the Middle East's financial sector, infrastructure, and technology push. In recent months, Hong Kong securities regulators visited the Middle East to promote capital flows between the Gulf and Greater China.

If approved, the deal would make QIA the third-biggest shareholder in ChinaAMC, which manages over 1.8 trillion yuan ($248 billion) of assets, and provides mutual funds and exchange traded funds to retail and institutional investors.

The ChinaAMC transaction would also allow a long-planned exit by Primavera, the Hong Kong-based investment firm founded by former Goldman Sachs partner Fred Hu.

QIA, which manages over $500 billion in assets, according to Global SWF, declined to comment. Nor did Primavera and ChinaAMC.

The CSRC did not immediately respond to Reuters request for comment.

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The surge in investments by funds in Gulf states comes against the backdrop of some Western financial firms reining in their investments and ambitions for China amid concerns about its economic recovery and geopolitical risks.

Norway's $1.4 trillion sovereign wealth fund, for example, closed its only office in China last year. Financial firms including Fidelity International Ltd and Morgan Stanley are also cutting China-focused jobs or shelving expansion plans.

"Investments from the Gulf states in China offsets the withdrawal of US investments from China," said Toh Han Shih, chief analyst of Headland Intelligence, a Hong Kong-based risk consulting firm.

"Thus, Gulf state sovereign wealth funds know they will receive a warm welcome in China."

For QIA, which aims to become a world-class investment institution as Qatar cuts oil dependence, the deal would give it access to China's fast-growing, $4.3 trillion mutual fund industry.

The sovereign fund's chief said last November that it was examining opportunities to invest in China's retail, healthcare, tech and logistics sectors.

It's not clear whether the Chinese regulators would approve QIA's planned stake purchase, nor how long it would take for such a decision to be made.

Primavera holds ChinaAMC's stake through a Tianjin-based company it ultimately controls, according to the sources and company registration information.

($1 = 7.2455 Chinese yuan renminbi) (Reporting by Samuel Shen and Selena Li; Editing by Sumeet Chatterjee and Kim Coghill)


Reuters