Kuwait: Eastern promise in China

Kuwait’s sovereign wealth fund is taking significant steps toward increasing its presence in China, establishing a representative office in Beijing with the aim of capitalising on the Asian giant’s rapid economic progress and rising demand for energy.

The outlook for regional expansion this year by the Kuwait Investment Authority (KIA) was further boosted this month by official figures which showed the country’s revenues had surged by 40% in the first half of 2011, with higher oil prices and output driving the growth.

Fahad Al Shatti, the chief representative of the Kuwait Investment Beijing Representative Office (KIRO), told Kuwaiti media that the investment body believes growth in China will remain steady over the next few decades. “The Chinese economy is growing in a stable and sustainable way, which is in line with KIA's long-term investment horizon,” he told the Kuwait News Agency, adding that the KIA's investment in the country had grown to $10bn, up from $2bn a decade ago.

The KIRO headquarters, located in Beijing’s business district, was inaugurated in early October with senior Chinese and foreign businessmen and diplomats attending.

Al Shatti told regional media that KIRO’s first priority will be to increase its investments in China to begin trading on the Shanghai Stock Exchange, adding that Kuwaiti exports of oil and crude products to China reached $10bn annually in 2010, compared to $400m in 2004.

The Kuwaiti ambassador to China, Mohammad Al Thuwaikh, said that opening was “clear evidence of the keenness of the two friendly countries’ leadership, governments and people for strengthening bilateral cooperation.”

“It is inevitable for KIA to gain a foothold here, given that China has witnessed the rapid economic growth with stable environment, a high standard of living and diversity,” he said.

Following the opening of the Beijing office, the Ministry of Finance revealed on October 27 that state income between April and September was $50.8bn, a 40% rise on the $36.3bn in the same period of the last fiscal year. Kuwait is estimated to hold some 10% of proven global crude reserves, while the KIA has assets worth more than $300bn according to the ministry’s figures.

In 2010, China’s demand for energy exceeded that of any other country for the first time, even surpassing the consumption of the US, with BP’s 2011 “Statistical Review of World Energy” showing that the country was consuming a full 20.3% of the world's total production. China’s economy is expected to grow by 9.5% this year and 9% next year, according to IMF estimates.

In mid-October, the Kuwait Embassy in Beijing also announced that the undersecretary of the Ministry of Commerce and Industry, Abdulaziz Al Khaldi, and the Chinese vice-minister of commerce, Fu Ziying, had proposed forming a joint committee to review trade relations between Kuwait and China. Al Khaldi called for “enhancing co-operation between the two sides to include tourism and investment, organisation of fairs, and intensification of mutual visits to share information and exchange views,” according to local media.

KIRO chief Al Shatti told regional media that his headquarters will also act as a “springboard” for further investment in East and North-east Asia, reflecting a trend of sovereign wealth markets of moving away from more traditional regions into emerging markets.

“[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 told Abu Dhabi’s English-language newspaper The National.

With bilateral trade and investment ties burgeoning, Kuwait is hoping to capitalise further through its project to build an oil refinery in China. The Kuwaiti oil minister Mohammad Al Busairi is promoting a $9bn plan for a China-Kuwait joint oil refinery to be run by the Kuwait Petroleum Corporation (KPC). The project in China’s southern Guangdong province, expected to be completed in 2013, would have an oil refining capacity of 300,000 barrels per day and will produce 1m tonnes of ethylene per year, according to China’s Xinhua news agency.

KPC said in October that it will decide soon on the international investors it will welcome to the joint venture with China Petroleum & Chemical Corporation, with 20% of its share to go on offer, with a final decision dependent on the results of some exploratory studies.