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Author: 
Dr. Mohamed A. Ramady
Publication Date: 
Mon, 2006-05-01 03:00

Between the pomp and ceremony of state visits and senior level meetings of Saudi and Chinese officials, there is indeed much to be pleased about concerning the blossoming relations between the world’s major oil producer, Saudi Arabia, and the emerging manufacturing superpower, China. It is no coincidence that President Hu Jintao of China came to Saudi Arabia straight after his state visit to the US in late April. The earlier state visit to China by Custodian of the Two Holy Mosques King Abdullah had already set the stage for an emerging economic bond between the two nations.

Oil and energy issues have moved to the top of China’s agenda as it seeks to assert its role as a full great economic power, and assure itself of reliable energy partners to feed its unmatched economic growth.

But it is not on the energy front alone that Saudi-Sino relations are being built. During President Hu’s visit, a number of accords were signed in security, defense, health, trade and youth matters. There were discussions about establishing a Chinese strategic oil reserve in southeast China with Saudi supplies, which again makes eminent sense given the possibility of a breakdown of Iranian oil supplies to China. In other major developments, Saudi Aramco and Sinopec, China’s top refiner and petrochemical producer, signed memorandums of understanding to increase trade cooperation as well as reviewing Sinopec’s gas exploration activities in the Saudi Al-Rub Al-Khali (Empty Quarter). At the same time, Saudi Basic Industries Cop. (SABIC) discussed with their Chinese counterparts plans to establish a $9.3 billion refinery and petrochemical project in northeastern China. It is now obvious to the major petrochemical players of the world that, with both Saudi Arabia and China having acceded to the WTO, the only viable competitive route open to multinational companies is to enter Saudi Arabia as a major petrochemical producer. In this way they can ensure competitive supplies to their domestic markets, as well as feed China’s growing petrochemical needs from their Saudi Arabia operations.

However, it is the increasing economic and investment ties at the private sector level that is gathering pace between the two countries. The private sectors of Saudi Arabia and China have come of age. The Chinese, while operating under a benign centralized economy, to all intents and purposes are working on a free market basis. In mid-April, the Chinese government has started the legal process of establishing the conditions for private oil companies to engage in oil exploration, which until now has been monopolized by the three giant state owned companies — PetroChina Co. Ltd., the offshore oil producer CNOOC Ltd. and Sinopec. The Saudi private sector has now matured well enough to be able to source strategic investment partners of choice away from more traditional trading partners in the Western world. The opening up of such strategic sectors of the Chinese economy should provide opportunities for Saudi private sector companies to establish advanced technology, primarily offshore, oil exploration joint venture companies.

Discussions are under way in many areas that will be of benefit to both private sectors in the fields of finance and banking, petrochemicals, cement production and electronics. It is somewhat surprising that there are no Chinese or Saudi banks operating in each other’s country to intermediate in the growing trade flows. The possibility of a Saudi-Chinese Bank being soon established is very likely, as some Saudi banks are making a bold step to open branches, or acquire existing banks in the Far East, as was announced by the Al-Rajhi Bank’s Malaysian expansion plans.

Obstacles do remain however, including language barriers, business attitudes, methods of dealing with the outside world, as well as a lack of transparency in information and data on potential investment projects. These barriers are being gradually reduced through regular contacts and visits by Saudi businessmen who are now traveling in greater numbers to the East these days, rather than to the West for investment opportunities and making business contacts. A lot more however needs to be done by Saudi Arabia to cement the relationship with the awakened Asian Dragon. Schools and universities should consider teaching Chinese as another key foreign language. Some UK schools have now added Mandarin Chinese as a mandatory second language, replacing more traditional European languages.

The Saudi Chambers of Commerce should beef up their “China Desk” operations, staffed by China specialists, to support the private sector in facilitating contacts and providing information, while the Saudi Embassy Commercial Section in China should become more proactive in sourcing new investment opportunities and liaising with the respective Chinese-Saudi Chambers of Commerce. A Center for China and Far East Studies could be established to provide first class think tank research activities, and establish a dialogue between Saudi Arabia, China and other key Asian countries. One is often amazed at the lack of such” think tanks “in the Arab World, specializing on China or any other place for that matter, when Washington boasts of at least a dozen think tanks specializing on the Near and Middle East.

Nations are looking ahead to give themselves a head-start in dealing with China as it opens up to the world. Saudi Arabia should do the same, as the opportunities for the Saudi private sector are very extensive and exciting and are not confined to the sectors mentioned earlier. Saudi Aramco saw such opportunities many years ago, when it sent its first batch of Saudi engineers and joint venture management to China and made sure they learned Chinese and understood Chinese methods of doing business. These vanguard personnel are the ones who are now much sought after within Saudi Aramco and elsewhere. The Chinese are a proud people, with a long history and glorious civilization behind them. Understanding them well will bring benefit to both sides, as so many businessmen find out to their cost when not understanding how to deal with other groups of people with their own long and proud history and cultures behind them.

China’s appetite for energy is only one dimension of the Saudi-Sino equation, but so is its appetite for raw material to fuel its manufacturing base. The untapped Saudi mining sector should be the next logical arena for joint venture cooperation. The coming decade will be Saudi Arabia’s chance to forge new investment and economic opportunities and alliances, or in other words, thinking West but moving East...

(Dr. Mohamed A. Ramady is visiting associate professor of finance and economics at King Fahd University of Petroleum and Minerals.)

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