A billion dollars for coffee? Abu Dhabi expands its investments in China

$1 billion may seem like an expensive sum for just a morning beverage, but that's how much the UAE capital, Abu Dhabi, spent in September to acquire a minority stake in Luckin Coffee, a Chinese chain that owns more than 36,000 stores around the world and has built its empire on low-cost drinks, continued expansion, and a business model that prioritizes digital applications. Mubadala, an Abu Dhabi sovereign wealth fund with assets worth $385 billion, has invested more than $20 billion in China over the past decade.

A relationship built over years In 2015, Mubadala entered into a landmark partnership with the China Development Bank and the China National Foreign Exchange Corporation to launch a joint UAE-China global investment fund worth $10 billion. Since then, Mubadala said it has made more than 100 investments in the Asian country, including the consumer, healthcare, and technology sectors.

These investments included fast fashion giant Shein, Chinese pharmaceutical company UCB, and Newland Commercial Management, which operates hundreds of shopping malls across the country, as part of a consortium that also included the Abu Dhabi Investment Authority. Ofoq News contacted the Abu Dhabi Investment Authority for comment, but did not receive a response.

In 2023, Mubadala opened an official office in Beijing, giving the fund a local presence that strengthened its relationships with Chinese companies and investors. “What we are actually seeing is the acceleration of a trend that began years ago,” says Chiara Spina, professor of entrepreneurship and family enterprises at INSEAD, Abu Dhabi.

Gulf sovereign wealth funds have been strengthening their presence in China for years, but Spina points out that investment motives there have become stronger as the Chinese economy shifts toward consumption and technology, as the Gulf states seek to diversify their economies away from dependence on oil. In 2024, the Saudi Public Investment Fund signed six agreements with major Chinese financial institutions, covering potential cooperation worth up to $50 billion.

Last year, the Qatar Investment Authority acquired a 10% stake in China Asset Management, one of the largest fund management companies in China. Hedging and spreading risks China is no longer witnessing the same growth rates that characterized previous decades, but this does not necessarily make it less attractive to Gulf investors.

“You're not trading off a macroeconomic slowdown that kills all the good investment opportunities,” Spina explains. “So the question is: where are the right investment opportunities within this economy as a whole?”

Lookin is one answer to this question. The company was founded in 2017, and succeeded in recovering from a fraud scandal that led to the delisting of its shares from the Nasdaq Stock Exchange, after which it transformed into one of the most prominent café chains in China.

The company has built its business model around a young, digitally savvy fan base, selling affordable drinks and regularly launching new products such as pineapple-flavored cold brew or grape-flavoured fizzy Americano. In-store customers place their orders via an online application, eliminating the need to stand in line or pay at the pick-up counter.

Spina believes that this digital presence may explain Mubadala’s interest in it, and explains: “I think they invest in areas that have an element that is scalable and stimulates growth. The fund’s investment portfolio is diversified to include semiconductors, data centers, artificial intelligence, and software, but technology represents only one part of the general landscape.

For Gulf sovereign wealth funds, Spina confirms that diversification is becoming increasingly important, especially in light of the ongoing repercussions of the war with Iran. “I think everyone is thinking about how to diversify and hedge against variables that are out of control,” she adds.

Expanding abroad Michael Chen, a partner at Centurium Capital, the largest shareholder in Luckin, said that the company is generating enough cash, which means that the Mubadala deal is not intended to finance operations. Instead, Chen highlights the added value the SWF can provide as Lukin looks to expand into overseas markets. “We believe this partnership will really help us expand overseas,” he asserts.

Luckin's international footprint is still relatively limited compared to its presence in China. While the company has branches in Singapore, Malaysia, and New York, it has not yet entered the Gulf market, a market that Chen believes may be part of future discussions. Chen views Mubadala as a long-term partner with a "vision" that will "help grow the company", rather than an investor just looking to make quick profits.

Mohammed Al Badr, head of Mubadala's Asia private equity unit, says this move will support "the next phase of the company's growth in China and internationally."