During Zhang’s visit, Saudi Arabia and China sealed 11 new deals worth about $20 billion, a joint investment fund of $20 billion and 60 agreements already signed worth a further $70 billion, and Riyadh also granted 11 investment licenses to four Chinese companies.
In this context, it has become clear that Riyadh’s strategy toward its top trade partner, China, is moving in three main directions.
First, the aim is to diversify economic relations between China and Saudi Arabia to include areas beyond energy. Today, more than 140 Chinese companies are investing in several sectors of the Saudi economy and there are currently 192 projects involving Chinese companies in the Kingdom. However, from the Saudi perspective, the Chinese companies’ economic involvements are below the required level and it is important to increase them significantly.
“Economically, both China and Saudi Arabia are in the critical transition period. For Saudi Arabia, due to the pressure of low oil prices, they are trying to boost their non-oil economy sectors as part of 2030 vision,” said Wang Zhen, associate professor and secretary general of the Center for West Asia and North Africa Studies at Shanghai Academy of Social Sciences. “As for China, our country is dealing with the consequences of economic slowdown and is trying to stimulate its economy and to realize the Chinese dream. In this context, both countries have the motives and reasons to strengthen their economy cooperation.”
Saudi Arabia is also keen to attract Chinese investment to new industries, such as industrial engineering, defense, manufacturing and tourism, which Riyadh hopes to develop as part of 2030 Vision to diversify the Kingdom’s economy.
Saudi companies such as Aramco and Sabic are aggressively looking to expand their activities in China, especially in the refining sector and petrochemicals, to mitigate the risks of growing competition in the Chinese market.
“The new agreements are part of the efforts from both sides to create a win-win situation through connecting China’s One Belt One Road Initiative and Saudi Vision 2030,” said Ding Long, deputy dean of the School of Foreign Studies at the University of International Business and Economics in Beijing.
Secondly, Saudi companies such as Aramco and Sabic are aggressively looking to expand their activities in China, especially in the refining sector and petrochemicals, to mitigate the risks of growing competition in the Chinese market. Indeed, Aramco is now facing competition for Chinese market share from Russia, Iraq, Iran, Venezuela and even Brazil. Russia last year overtook Saudi Arabia to become China’s biggest crude oil supplier for the first time ever. More worryingly, Saudi Arabia has slipped to third place behind Russia and Angola in the first half of this year.
In this context, Aramco is certainly seeking to keep stable supplies to one of its three top buyers in the world, Japan, the US and China. To be sure, Saudi Aramco is expected to sign a final deal with PetroChina, China’s second-largest state-run refiner, within six months to invest in its Yunnan refinery. “The goal is that not only will the Kingdom be China’s largest crude exporter, but the largest in-market investor,” Saudi Arabia’s Energy Minister Khalid Al-Falih said.
China also offers important economic advantages to Saudi Arabia’s sizeable downstream and petrochemicals sectors. Sabic already holds a stake in a polycarbonate complex in Tianjin with China Petroleum & Chemical Corporation, while Aramco holds a stake in the Fujian Refining & Petrochemical Company. In May, Chinese defense conglomerate China North Industries Group Corp. signed a framework agreement with Aramco to build a refinery and chemicals complex in northeast China.
“The cooperation in the petrochemical industry can secure China’s oil supply. Meanwhile, Saudi Arabia can guarantee its oil exports, and enter the downstream oil industry in China. The agreement on joint investment fund will be a platform for facilitating the implementation of One Belt One Road projects in Saudi Arabia,” Long said.
Finally, the Saudi Public Investment Fund, which currently has a $111 billion portfolio of Saudi assets and plans to become the world’s largest sovereign fund, is also looking for big investment opportunities in China.
• Dr. Naser Al-Tamimi is a UK-based Middle East researcher, political analyst and commentator with interests in energy politics and Gulf-Asia relations. Al-Tamimi is author of the book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He can be reached on e-mail: [email protected] Twitter: @nasertamimi