Banking & Finance

Saudi dominates Chinese BRI investment in GCC

February 17, 2023, 2:59 AM

Saudi Arabia is a major beneficiary of the Belt and Road Initiative launched by Chinese president Xi Jinping

Belt and Road Initiative engagement surged 244% in 2022 to $9.3bn
Investment included $4.7bn gas pipeline deal with Saudi Aramco
Middle Eastern countries received about 23% of BRI engagement

Chinese engagement in the GCC through the Belt and Road Initiative (BRI) increased by 244 percent in 2022 to $9.3 billion – and over half of the total amount of funding was secured by Saudi Arabia.

The increase came despite overall spending by the BRI falling year-on-year by just over 1.3 percent to $67.78 billion, according to research by the Green Finance and Development Center in Shanghai.

With $5.5 billion ploughed into Saudi Arabia, the kingdom became the second most important country for the BRI in 2022 behind Hungary.

Investment included the largest funded project in the GCC for the year, a $4.7 billion gas pipeline deal with Saudi Aramco.

“Saudi Arabia continues to be a most important partner for China’s overseas engagement,” said Dr Christoph Nedopil Wang, director of the Green Finance and Development Center and author of the report.

The BRI was launched by Chinese president Xi Jinping in October 2013 as a global infrastructure development strategy to invest in more than 150 countries and international organisations across Asia, Africa and Latin America.

Since then its total engagement amounts to $962 billion, about $573 billion in construction contracts and $389 billion in non-financial investments.

Saudi Arabia is the largest partner for China in the GCC, with an estimated 83 percent of China’s engagement in 2022 taking place in the kingdom and around 44 percent of total engagement since 2013.

The UAE is the second largest partner in terms of investment and construction engagement.

Rachel Ziemba, founder of geo-economic advisory firm Ziemba Insights, said: “In my opinion the investment in the Gulf, especially Saudi Arabia, is very important to Chinese energy security and relationships.

“It happens that some of the co-investments are done within the structure of investments in the BRI, but ultimately its importance is about the bilateral relationship, rather than the BRI per se.”

In total, Middle Eastern countries also expanded their cooperation with China and received about 23 percent of Chinese BRI engagement in 2022 – up from 16.5 percent and about 21 percent of Chinese investment volume – twice the share of 2021.

James Swanston, an emerging markets economist specialising in the Middle East and North Africa at Capital Economics, said that Gulf countries, with balance sheets buoyed by increased hydrocarbon revenues, could provide some impetus to the initiative through increased investment.

But he warned the ongoing tensions between China and the West could place countries in the region, particularly Saudi Arabia, in a precarious position with its global allies.

He said: “While being part of the BRI could, in theory, lead to investments into Saudi Arabia, a transfer of knowledge and technology could be slow to be forthcoming.

“If the kingdom was to increasingly tilt away from the US it would threaten to undermine the push by Crown Prince Mohammed bin Salman to attract Western investment – this could hamper the kingdom’s own efforts to diversify away from oil as part of Vision 2030 reforms.”

Tim Kerckhoff, infrastructure analyst at Fitch Solutions, said he expects slowing economic growth in mainland China to push Chinese companies to explore more opportunities overseas.

But he said the environment of higher interest rates and currency weakness which are expected to persist over the decade will push up debt servicing costs across many emerging markets (EMs) and make it less sustainable for governments to carry levels of debt like those held previously.

He said: “EM policymakers will be particularly discouraged from borrowing to fund the kind of large scale flagship projects for the BRI we saw over the previous decade, which we think carry a higher risk due to their large scale and complexity.”