RIYADH: More than 70 Chinese companies are doing business in the Kingdom, of which 62 are construction firms employing close to 16,000 Chinese people. One Chinese construction company won a SR2.2 billion contract, the largest for a Chinese company in the Kingdom, to help expand facilities at King Khalid University. Another venture hinged on intangible factors is the proposed Sino-Saudi Jazan aluminum plant, which is jointly owned by Aluminum Corporation of China Ltd.(Chalco). A Chinese contractor also won a contract in 2007 to build a container terminal at Jeddah Islamic Port at a cost of SR860 million, and the same firm was selected along with a local company to build the industrial port at Ras Al-Zour. Chinese cement companies are heavily involved in upgrading and expansion work for Saudi cement companies. And, last but not least, a Saudi-Chinese consortium recently won the SR6.7 billion civil works contract for the Makkah-Madinah high-speed railway on behalf of the Saudi Railroad Organization.
Data on FDI (foreign direct investments) from either country is not very clear. Chinese government data shows that Saudi Arabia’s investments into China over the past five years have not exceeded a total of SR1.8 billion, while Chinese FDI in the Kingdom during that period has not exceeded SR1.7 billion. These figures might seem lower than many would imagine, but they don’t capture the portfolio investments of Saudi businessmen in China.
Saudi Arabia has granted China Petroleum and Chemical Corp. (Sinopec) a SR1.1 billion concession to explore and produce natural gas in a 38,000-km concession area. Sinopec own 80 percent of a special-purpose company and Saudi Aramco the remaining 20 percent. Although Sinopec has less experience in natural gas exploration the concession is symbolic of the reciprocal hydrocarbon relationship between the two countries.
In 2003, a nongovernmental joint commercial committee was created with a mandate to organize business forums and other activities, as well as advise government officials on ways to facilitate trade. More than 35,000 Saudis traveled to China in 2007. And when emergency aid was needed, Saudi Arabia donated SR187.5 million in cash and SR37.5 million worth of relief materials for the earthquake victims of Sichuan province in May 2008.
Much has been said about the relationship between Riyadh and Beijing. Many have characterized the relationship as a counterweight or even an alternative to the US-Saudi relationship. There are those who see the Sino-Saudi relations as part of an “Asian alternative” strategy that would make the Kingdom less dependent on the US. We believe that there is a noticeable shift in trading flows and that this, in itself, is offering economic alternatives to Saudi Arabia. However, we do not feel that the relationship should be seen as a shift in Saudi Arabia’s politico-military direction.
More importantly, the relationship with China should be seen as a consequence of China’s global economic role and its energy imperatives, making partnerships in the Middle East all the more vital. China does not want its policies to be perceived as motivated by a larger strategy of isolating the US from the region. Political alternatives take time to unfold and, for the moment, Riyadh-Beijing ties are firmly developing in the trade arena.
China needs to nourish its trade ties in the region as it imports close to 50 percent of its oil from the Gulf. In 2008 Saudi Arabia alone accounted for 20 percent of China’s oil imports. In the short term, as China’s economy is slowing down, so will its appetite for oil; but in the medium term, China’s dependence on Saudi and GCC oil will continue to rise.
Continuing to look East is the guiding foreign policy principle of Saudi Arabia. China is aware that Saudi Arabia is the seminal global oil producer and that its strength can only increase, as non-OPEC (Organization of the Petroleum Exporting Countries) oil will not match the capacity of the Gulf producers. Gradually, China is also recognizing that the effects on Saudi Arabia of the global economic crisis are minimal. The Kingdom stands as the most unscathed member of the G-20.
Both countries hold massive foreign reserves while others are seeing theirs depleting fast, and both also hold large US government paper. Saudi Arabia for its part is clearly aware that China is the second largest economy in the world, with a vast potential demand for energy. With its growth predicated on using hydrocarbons, China needs Saudi Arabian oil (currently 17 percent of its total oil imports) and Saudi Arabia needs to Look East to find growing markets for its oil and petrochemicals over the next decades.
In addition, the Kingdom needs to build its market knowledge in Asia. China offers important economic advantages to Saudi Arabia’s downstream expansion into the wider region. And closer to home, China’s affordable contractors and low-cost labor force do offer Saudi Arabia an extra cushion for the country’s development projects. China’s economic policy within the region at large, and particularly in Saudi Arabia, is not hindered by political baggage, unlike the path adopted recently by the EU in its free trade talks with the GCC.
It would be wrong for both Saudi Arabia and China not to develop strong ties. Trade flows between the two countries will increase in the coming years, bringing them closer together. Both countries need to deal with the shifting economic balance of power from the US and the West. For the moment, we don’t believe that the roles of the US and China in the region are mutually exclusive. Therefore, we prefer to describe the relationship between Riyadh and Beijing as one of long-term mutual reciprocity. China’s role in the Middle East and its ties with Saudi Arabia will grow stronger as a natural result of Beijing’s rising status in the global landscape.
(John Sfakianakis is chief economist at the Riyadh-based SABB {Saudi British Bank})