Saudi Arabia seeks to ink billion dollar landmark deals with China

Saudi Arabia’s King Salman bin Abdulaziz’s month long trip to Asia kicked off with a landmark three day visit to Beijing as he, along with Chinese President Xi Jingping, signed a series of deals worth up to $65 billion. As China looks to expand its sphere of influence in the Middle East, and the Saudis look to diversify into new markets and industries, mutual cooperation has been seen by both states as a pivotal move.

In recent years, Sino-Saudi relations have strengthened innumerably, and there is little wonder why King Salman of Saudi Arabia is so keen to sign such a deal. Since 2015, the People’s Republic of China has been Saudi Arabia’s biggest trading partner, surpassing even the United States (U.S.). Today, approximately two-thirds of all exported Saudi oil is sent to Asia – while under the Obama administration, the U.S. had significantly cut down on its oil purchases due to the development of viable sources of oil, such as fracking, stateside. Meanwhile, Saudi Arabia has looked towards other regions of the world for lucrative trade, one of is Asia. For example, in 2016, Asia surpassed the European Union (EU) as the largest trading partner to the Gulf Cooperation Council (GCC). Today, China is the world’s largest energy consumer and the world’s second largest crude oil importer, making it a highly valuable partner for the Saudis.

However, the Saudis still only see a fraction of China’s potential oil business. Much of Chinese business still stems from historic Cold War era ties with Russia, with the vast majority of the commodity being imported from there. King Salman is most likely looking to encourage Russian competition and take a larger piece of the proverbial pie home, and the new deals with President Xi, which cover everything from the energy sector to building theme parks, are a comprehensive way to show the Saudis’ seriousness in investment into China.

Adam Cohn

Image courtesy of Adam Cohn, © 2007, some rights reserved.

Chinese central news agency Xinhua reported that ‘both sides stress the importance of stability in world oil markets to the global economy […] China appreciates Saudi Arabia being a safe and dependable oil supplier to the world market, and the role it plays in ensuring the stability of the global oil market.’ Reuters argued that diplomatic sources believe China is seeking to replace the U.S.’s role in the Middle East as an ‘honest broker’ of policy. Unlike the U.S., many believe that China’s lack of ‘political baggage’ in the region will lend the state an air of trust in negotiations. In recent months, however, China has increased its involvement in Syria’s civil war, backing the Saudi-supported Yemeni government in Sana’a against the Houthi rebels, and President Xi visited Iran twice in 2016. As China continues to battle American soft power across the globe, accessing the Middle East will be a pivotal part of that stratagem, and forming strong alliances with regional powers such as the Saudis may position China well.

For the Saudis, this is just the beginning of its ‘Vision 2030’ plan, which was announced this past April. The plan calls for comprehensive reforms in economic and social aspects of Saudi society as the kingdom begins to prepare for an era during which it reduces its dependency on oil revenue. In a recent interview, Saudi ambassador to China Turki Bin Mohamed Al-Mady stated ‘amid the decreasing crude oil price and the needs for economic diversification, the Saudi king’s visit to Asia and China is set to seek for partners and investors in the Asia Pacific region.’ Back in January 2016, China’s state owned petroleum and gas company Sinopec and Saudi Arabia’s Aramco had inked a massive deal under which projects such as the establishment of a petroleum refinery in Yanbu had already begun development. In addition, both Saudi Arabia and China seek increased access to maritime trade routes and as they both attempt to diversify trade, control over key access ports will be central to both. Both states have found themselves in mutually beneficial positions: recent Chinese port installations in the Indian Ocean, Red Sea, Suez Canal, and in Athens’s Piraeus Port (which has recently, under Chinese ownership, become the most efficient in Europe) will be key to both states. The Saudis are similarly seeking to raise their global logistics rankings from 52nd today to 25th by 2030, and with more than 10 per cent of all global trade passing through the Red Sea annually, Chinese cooperation will play a vital role in implementing ‘Vision 2030.’

Historically, the Saudis have relied heavily on exporting oil and on trade relations with the U.S., but with the fall of worldwide crude oil prices and the Americans’ slow pull-out of the Levant (a region that spans from southern Turkey to Egypt), the Saudis have needed to look for alternative markets and to diversify its industries. In order to do so, it has looked towards China for assistance. Meanwhile, China is not only looking to expand its influence in the Middle East, but also to strengthen mutual trading ties. As American influence potentially wanes globally under the Trump administration, it is likely that China’s star will continue to rise as it inks deals similar to these. In doing so, the global order is certainly set to change.