Middle Eastern Wealth Funds Under Increased US Scrutiny Amid Strengthening China Ties

Recently, Middle Eastern sovereign wealth funds have come under closer examination by U.S. authorities due to concerns involving their connections with China. The Biden administration is actively reviewing partnerships and deals amidst anxieties over national security risks.

Committee On the Lookout

The Committee on Foreign Investment in the United States (CFIUS) has its eyes on numerous high-value transactions this year. High-profile funds, such as those managed by the Abu Dhabi Investment Authority, Mubadala Investment Co., and Saudi Arabia's Public Investment Fund, are under the microscope to evaluate potential risks. These reviews are being kept confidential, reflecting the sensitivity of the investigations.

Shifting Investment Landscape

Gulf wealth funds have traditionally preferred the U.S. for investments, but China has grown to become a formidable investment location as well. In 2023, investments by these funds into China surged to $2.3 billion, a significant increase from the previous year's $100 million. This comes as China actively works to strengthen its political ties with Middle Eastern states, a move highlighted by President Xi Jinping's visit to Riyadh.

Technological Leverage

The U.S. has raised alarm that sensitive technologies, including those in areas of artificial intelligence and semiconductors, could fall into Chinese hands through the United Arab Emirates. This concern stems from the fact that a small number of Emirati royals hold sway over national security and foreign policy decisions.

CFIUS Tactics

To address American worries, CFIUS has sought to scrutinize the internal financial records of Gulf wealth funds. However, these funds are hesitant to reveal their private financial dealings to an international body.

Regulatory Options

One of the deals being examined is Mubadala's plan to purchase a stake in Fortress Investment Group. Solutions such as including U.S. investors in the deal are being explored to appease regulators. This examination by U.S. officials is not unprecedented, as SoftBank's deal with Fortress also underwent CFIUS scrutiny.

Trade and Investment Nexus

The United Arab Emirates ambassador to the U.S. has emphasized the deep trade and investment ties between the two nations, highlighting the UAE's role as a significant partner in innovation and commerce. The UAE has shown a commitment to cooperate with American oversight such as CFIUS to safeguard sensitive sectors.

Rising Trends in Investments

Gulf funds have been diversifying their global investments, including an increased focus on the tech sector. Their investments in U.S. deals have been notable, with wealth funds partaking in ventures totaling over $23 billion in 2023. Despite enhancing their investments in China, Gulf officials assert that the U.S. remains an essential investment partner.

Broader Implications

The Biden administration's recent actions are part of a broader strategy to tighten investment relations with China. This was a topic of discussion during Biden and Xi's meeting. As the Gulf states invest more in tech globally, it is expected that their transactions may be subject to CFIUS review, though many may still receive approval.

Scrutiny, Investment, Security