One billion dollars is a lot to pay for a morning brew, but that’s what Abu Dhabi spent in September for a minority stake in Luckin Coffee, the Chinese chain with more than 36,000 global stores that built an empire on cheap drinks, relentless expansion and an app-first business model.

But for the emirate, the deal is about more than coffee.

Mubadala Investment Company, Abu Dhabi’s $385-billion sovereign wealth fund, has invested more than $20 billion in China in the last decade. Its stake in Luckin offers a glimpse into what the emirate sees in a Chinese economy that has slowed down in recent years and is looking to consumers to help drive its next chapter of growth.

A relationship years in the making

In 2015, Mubadala formed a landmark partnership with China Development Bank Capital and China’s State Administration of Foreign Exchange to launch a $10 billion United Arab Emirates-China global investment fund.

Since then, Mubadala says it has made more than 100 investments in the Asian nation, spanning consumer businesses, healthcare and technology. Those include Shein, the fast-fashion giant; UCB’s pharmaceutical business in China; and Newland Commercial Management — which manages hundreds of shopping malls around the country — as part of a consortium that included the Abu Dhabi Investment Authority.

CNN reached out to the Abu Dhabi Investment Authority for comment but didn’t receive a response.

Mubadala formally opened an office in Beijing in 2023, giving the fund a local presence, deepening relationships with Chinese companies and investors.

“What we’re seeing is actually a bit of an acceleration of a trend that started years ago,” said Chiara Spina, professor of entrepreneurship and family enterprise at INSEAD Abu Dhabi, an international graduate business school.

Gulf sovereign wealth funds have been building their presence in China for years, but Spina says the case for investing there has grown stronger as China’s economy shifts toward consumption and technology, while Gulf states seek to diversify beyond oil.

In 2024, Saudi Arabia’s Public Investment Fund signed six agreements with major Chinese financial institutions covering up to $50 billion in potential cooperation. Qatar Investment Authority last year bought a 10% stake in China Asset Management, one of the country’s largest fund managers.

Hedging bets

China is no longer growing at the pace of previous decades, but that has not necessarily made it less inviting for Gulf investors.

“(Mubadala) don’t see the fact that the overall economy has slowed down as something that is killing all good investment opportunities,” Spina said. “And so the question is: where are the right investment opportunities within that economy overall?”

Luckin is one answer.

Founded in 2017, it bounced back from a fraud scandal that saw it delisted from the Nasdaq and has grown into one of China’s leading coffee chains.

The company has built its business around a young, digitally savvy consumer base, selling inexpensive drinks and regularly introducing new products like Pineapple Cold Brews or Grape Fizzy Americanos. Its in-store customers order through an app, eliminating ordering lines and counter payments.

That digital presence could help explain Mubadala’s interest, Spina said, pointing to the fund’s strategy. “I think they invest in a space where there is a component that can be scaled and enables growth … through technology.”

Its portfolio spans semiconductors, data centers, AI and software, but technology is only part of the picture. For Gulf sovereign wealth funds, Spina says that diversification has become increasingly important, especially with the ongoing impact of the Iran war.

“I think everyone is thinking about how to diversify and how to hedge against dynamics that are outside everyone’s control,” she said.

Expanding overseas

Michael Chen, a partner at Centurium Capital, Luckin’s largest shareholder, said the company is already generating enough cash that the Mubadala deal is not about funding operations.

Instead, he pointed to what the wealth fund could bring as Luckin looks abroad.

“We believe that the connection will actually help us to expand overseas,” Chen told CNN.

Luckin’s international footprint is still relatively small compared with its presence in China. With branches in Singapore, Malaysia, and most recently New York City, it has yet to open in the Gulf — a market Chen says could be part of future discussions.

Chen said he sees Mubadala as the type of long-term shareholder with a “vision” that could “help grow the company,” rather than one looking for a quick return.

Mohamed Albadr, head of Asia, private equity, at Mubadala, said in the joint press release that the move would “support the company’s next phase of growth in China and internationally.”