Middle East Money Starts Flowing to Asia

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On the other hand, China's leaders are very concerned about finding steady supplies of oil and gas for the Chinese economy. That's why Beijing has been a big investor in Sudan, for instance, despite the controversy surrounding the Sudanese regime's policies in Darfur (BusinessWeek.com, 2/13/08)

And it's a reason the Chinese are likely to find more ways to cooperate with investors from the Middle East. "Oil supply is a humongous issue," says Ronnie Chan, chairman of Hong Kong-based developer Hang Lung Properties. If you are a Chinese leader, finding ways to help investors from the Gulf get a piece of the Chinese growth story makes sense. "You need to build bridges with this part of the world in order to have leverage," says Chan.

Arab Investors Face China Challenges

For their part, some Arab investors might have political reasons to be focusing more on Asia, too. Not everyone in the West is happy about the idea of investment from the Middle East. Politicians in the U.S., for example, have complained about proposed Dubai investment in American ports. Gulf investors are unlikely to face similar problems in Asia. China, for one, doesn't have a free press and is a one-party state. India has a large Muslim population and close ties to the Mideast region. "Capital is like a river," says Standard Chartered's Shankar. "It flows. And when it finds a rock, it goes around the rock. The rock is the Western markets that resist some of these funds."

That doesn't mean the flow to Asia will go unimpeded, though. Alyousuf, of the Dubai School of Government, says that would-be investors from the Gulf face challenges trying to break into China. "We are a big importer of Chinese products. However I don't think there is much going the other way," he says, pointing out that when it comes to doing business in the West, investors from the Gulf already have the contacts and players. India, because of its proximity and tradition of trade ties with the Middle East, is not too difficult, either. Gulf region investors are on far less familiar ground in China, though. "China is still a mystery to a lot of people in this part of the world," he says.

Hang Lung's Chan agrees that Middle Eastern investors will face challenges in China. "The knowledge of China has been wanting," he says. As more businesses from the Gulf focus on Chinese deals, "the learning curve will be steep."

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau .