Chinese President Xi Jinping visits the parliament in Cairo last week. (AP Photo / Ahmed Omar)
Chinese President Xi Jinping visits the parliament in Cairo last week. (AP Photo / Ahmed Omar)
Chinese President Xi Jinping visits the parliament in Cairo last week. (AP Photo / Ahmed Omar)
Chinese President Xi Jinping visits the parliament in Cairo last week. (AP Photo / Ahmed Omar)

Beijing should tread carefully


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Chinese president Xi Jinping has tallied up a lot of frequent-flyer points in recent days. Mr Xi was in Tehran at the weekend, where he met his Iranian counterpart, Hassan Rouhani, and announced plans for economic cooperation worth up to $600 billion (Dh2.2tn) over 10 years. But it’s not just Iran where China is seeking to do business.

Mr Xi has also been to Egypt, where China has spent billions in aid and loans, and expressed support for president Adbel Fattah El Sisi’s efforts to maintain security. He used a media interview in Cairo to call for the establishment of a Palestinian state with East Jerusalem as its capital, and pledged $7.6m towards a solar-power project in the Palestinian territories. China also promised to donate $35m in humanitarian aid to Syria, Lebanon, Jordan, Libya and Yemen.

On this same trip, Mr Xi has been to Saudi Arabia, where he said he hoped to lift “cooperation in various fields to a new level” and announced several new infrastructure projects. The sequential visits to Riyadh and Tehran have come at a time of heightened tensions in this region, with Tehran criticising the execution in Saudi Arabia of a prominent Shia cleric and Riyadh blaming Tehran for allowing protesters to ransack its embassy. The Gulf states have all cut off or scaled back diplomatic relations with Iran.

Mr Xi has been careful not to choose sides in the current dispute. But China cannot sit on the fence for ever if it seeks to be the major power broker in this region. Given its activities across Africa, Asia and the Pacific in recent years, it is clear that Beijing wants to extend its economic influence across the globe. But in doing so, it needs to be careful.

If China wants to replace the United States as the dominant international superpower, then it must have a well-considered world view that includes recognising the poisonous influence Iran is having in the Middle East. Rather than seek to please everyone, China must make firm, consistent and benign foreign-policy decisions.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”