Analysis

Xi Jinping visits Saudi as GCC looks east on trade

December 7, 2022

People, Person, Man — Chinese President Xi Jinping's three-day visit to Saudi Arabia will include three summits and the signing of more than $29.3 billion worth of agreements

20+ agreements expected to be signed during president’s visit
China and Saudi preparing to launch joint $6bn petrochemical venture
GCC and Saudi trade with Asia has “never been higher”

When President Xi Jinping of China arrives in Saudi Arabia on Wednesday, it is likely to add further momentum to a flourishing relationship with the GCC that surpassed trade with the US and Europe combined last year.

Three summits are planned during the three-day visit with over 20 agreements worth more than $29.3 billion expected to be signed, in addition to a strategic partnership document between the kingdom’s Vision 2030 and the Belt and Road Initiative.

Separately, the nations are also preparing to launch the SABIC-Fujian Petrochemical Industrial Group Co, a joint venture to produce petrochemical products, with an estimated value of $6 billion.

The visit comes as GCC trade with emerging Asia – which refers to a list of 34 Asian economies, including China and India – is expected to surpass the region’s trade with advanced economies by 2028 if current growth rates are maintained.

This is according to Asia House, an independent think tank and advisory service, which described it as a “major shift in global trade dynamics”.

Asia House said trade between the GCC and emerging Asia, which had dipped from $320 billion in 2019 to $262 billion in 2020 due to the impact of the global pandemic, has now recovered to levels not seen since 2014.

Trade is expected to reach $578 billion by 2030.

“As GCC-Asia trade and investment rises, we will see greater bilateral political exchanges and cooperation to protect and expand these investments, making this relationship a significant pillar of global politics,” said Freddie Neve, senior Middle East associate at Asia House.

Waleed Rasromani, corporate M&A partner for Dubai and Riyadh at law firm Linklaters, said that there has been a clear shift eastward in the GCC’s trade partners.

“Asia, over the course of the past decade, has overtaken the US and Europe as the GCC’s main trading partner. It started as an energy relationship and, while energy continues to be a big component of trade, there is now growing cooperation in other areas,” he said.

“Since sustainability and the push for net zero have grown in importance to business leaders and governments, we see more cooperation on energy innovation such as the development of hydrogen.

“There is also greater cooperation within the overall technology sphere, whether in terms of research and development in hydrocarbons or exploring other areas like e-commerce, fintech and payment services.”

Rasromani added: “There will be greater engagement in developing greener energy, with the Middle East exploring alternative energy sources, such as ammonia, hydrogen and nuclear energy.

“For nuclear energy, it is yet to be seen whether they partner with China or turn to their more traditional trading partners, the US and Europe, but China will certainly have an interest in developing Gulf nuclear energy capabilities.”

GCC-China trade is driving the growth and has doubled from approximately $90.6 billion to $180 billion between 2010 and 2021, says Asia House. China is already the biggest trading partner for all GCC economies, with the exception of Bahrain.

Neve said: “GCC-China trade has never been higher and 2021 was the first time it had surpassed the GCC’s trade with the US and Europe area combined.”

China’s trade with Saudi Arabia also exceeded Riyadh’s with the US and Europe combined for the first time in 2021.

Asia House said it also expects the UAE’s trade with China to overtake that with Western economies. The difference between UAE trade with China and with the US, the UK and the Europe combined is narrowing, and now stands at approximately $3.4 billion. In 2010, the difference was $28 billion.

The report states that India is another vital component of the Middle East pivot to Asia. This year has seen UAE-India ties strengthen following the signing of a CEPA (comprehensive economic partnership agreement), which aims to increase UAE-India non-oil trade to $100 billion from $45 billion over the next five years

Stephen Moss, HSBC’s regional CEO for the Middle East, North Africa and Turkey, said Middle East-based sovereign wealth funds are also increasingly looking east to Asia as China and India become major players in the region.

“China is a major player in this corridor,” he said. “Asia is also heavily investing in supporting infrastructure development across the Middle East in line with the Gulf states’ various national development Vision plans.

“For example, walking around Downtown Dubai, you can see Chinese and Korean companies constructing new buildings.”

Moss said he had seen evidence of increased interest from Middle Eastern sovereign wealth funds (SWFs) in Asia – “be it in the form of opening new offices, exploring investment opportunities, or even just growing awareness of and interest in the region’s economies”.

“SWFs are coming to us to learn more about how to do business there,” he said. “I have had enquiries about topics including the Chinese business environment, Asian capital markets, and the Asian mergers and acquisitions environment – and I can only see that interest growing.”

There has been an increase in cooperation between Gulf and Asian SWFs in joint investments, such as the Abu Dhabi Investment Authority and Singapore’s Temasek involvement in GoTo’s pre-IPO round.

India has also been an important destination for Gulf SWF investment in 2022, while Saudi Arabia’s Public Investment Fund and the Qatar Investment Authority have also increased their focus this year on deal-making in Asia.

Outside of the GCC, Cairo is deepening ties with China with the launch of the Egyptian-Chinese Entrepreneurs Association last week.

The new platform will explore investment opportunities in areas of priority such as green energy, scientific research and pharmaceuticals.