Chinese companies and asset managers are looking more closely to the Middle East in their quest to expand and diversify. Chinese resources companies and financial players have been expanding into the Middle East for a while now, said Lawrence Chia, Hong Kong-based partner at Deloitte Touche Tohmatsu, but lately "there is a concerted effort to encourage export of capital." Last month, Dubai International Capital LLC and Hong Kong-based First Eastern Investment Group announced plans to join forces and launch a new fund, China Dubai Capital.The US$1 billion fund is to focus on buying into Chinese companies that have potential to expand into the Middle East and eventually list on the Dubai Financial Market. "We're early believers of the inevitable reconnection of the silk road," said Victor Chu, managing director of First Eastern. "All the macrodynamics are very compelling. The Gulf is looking back east and China is a growing economy. There are lots of strategic fits." While the flow of capital from the Middle East to China and elsewhere in Asia isn't a new trend - there's now also a definite push to export Chinese capital. In recent years, Huawei Technologies , Haier Group and ZTE Corp. have all made inroads in the region. The first 3G mobile network built in the United Arab Emirates was built by Huawei and ZTE have also snapped up market share in Saudi Arabia. Looking to capitalize on flow of capital, Christophe Lee, chief executive officer of SHK Fund Management Ltd., the alternative investments arm of Hong Kong-based Sun Hung Kai Financial, said he got inspired to launch a Middle East North Africa hedge fund after a visit to the region last year. The firm has been talking to Middle East firms to help manage the new fund. Similarly, mulling the growing ties between the two regions, Jade Invest,a fund of private equity funds focused exclusively on China, made a conscious effort to approach investors in the Middle East. About half the firm's investor base now hails from the region. One of the advantages of having such an investor base is the potential that Middle Eastern investors can help portfolio companies to find strategic partners in the region, Managing Director Jonas Lindblad said. Jade Invest stays on the lookout for potential matches, said Lindblad, and the firm's investors have been helpful on more than one occasion - offering opportunities to portfolio companies. In one instance, a Chinese heavy construction equipment company that had already successfully expanded into India was looking for a way into the Middle East. The firm was able to pair up the company with a distributor in the Gulf - a conglomerate that was also an investor. "As a next step, most Chinese companies would not jump directly into European or American markets. They want another market that's as close to their own as possible so they start to focus on other emerging markets like India and the Middle East," Lindblad said. Industry observers note that Asian companies, including Chinese, are well positioned to help meet the Gulf's massive infrastructure needs, which have been estimated to require more than US$500 billion in the next few years. China Dubai Capital's new US$1 billion fund expects to provide capital to Chinese companies, particularly in the building materials, engineering design and construction sectors helping them to pursue opportunities in the Gulf region. First Eastern's Chu said the firm isn't targeting large Chinese companies that are already in the Gulf in a big way but rather medium-sized companies. Chu, who started visiting the Middle East in 1992, sees Chinese companies listing in Dubai or other Middle East markets before long. There are more than 10 million companies in China of which 1%, or 100,000, have the potential to be listed anywhere in the world, he said. Initial public offerings in Hong Kong and New York are typically reserved for the biggest companies, while smaller companies go to Singapore. But "there's room for another international market to contribute to this process," Chu said. Chu has great faith in the Borse DubaiBorse Dubai Ltd., Dubai's stock exchange, which currently has alliances with Nasdaq as well as Stockholm-based OMX AB. Chu sees this leading to more multiple listings as well as more listings in Dubai. But not everyone sees Chinese companies listing in the Middle East anytime soon. "What matters to get better valuation is which capital market understands a company better. At the moment, Hong Kong understands Chinese companies much better," said Chia. Also, while the opportunities are there, there are bound to be hiccups along the way. Bahrain-based Shamil BankShamil Bank raised a US$100 million Shariah-compliant China real estate fund in Jan. 2006. Despite the fanfare of being the first of its kind, the fund failed to make any investments and the bank returned the money to investors. Shamil BankShamil Bank did not respond to requests to comment. -By Ellen Sheng,

Follow us on our social media channels: @ILQlive @ILQlive @ILoveQtr ILoveQatar