Saudi Arabia’s ‘transactional’ relationship with China is evolving fast

Reuters

The opening day of the 10th Arab China Business Conference – currently ongoing in Riyadh – was long on historical rhetoric.

Saudi foreign minister Prince Faisal Bin Farhan paid tribute to the “longstanding and advanced partnership” between the Arab world and China, while the Saudi investment minister Khalid Al Falih harked back to the Silk Road, for centuries the artery of commerce between east and west.

The reality is rather more prosaic.

Saudi Arabia did not establish diplomatic relations with the communist People’s Republic until 1990. It was soon afterwards that the first sign of the basis of the new relationship materialised: shipments of Aramco crude to fuel the Chinese economic transformation then just beginning to take off.

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That is not to belittle the huge growth there has been in the Arab-China economic partnership since then – especially in the past six years – nor the scale of the ambitions voiced at the Riyadh conference.

Since the Vision 2030 strategy was unveiled in 2016, the eastward tilt by Saudi Arabia and other Arab countries has accelerated at pace.

The conference heard that in 2022 Saudi-China trade hit $106 billion, a 30 percent increase over the previous year.

The components of that trade have changed, too. Thirty years ago, it would have been a simple swap of crude oil for light manufactured goods and some consumer products. Now, China is exporting a wide range of sophisticated technologies, as well as advanced engineering products, to Riyadh.

Among the deals announced on the first day of the conference were multi-billion dollar agreements in electric vehicles and autonomous cars, which Saudi Arabia has already embraced with its own investments in EV manufacturers Lucid and Ceer.

The strategy is to collaborate with China to develop domestic capacity that will give the kingdom’s EV industry scale and volume.

There were also collaborative deals in app technology for tourism, rail rolling stock manufacture in Saudi Arabia, and a wide range of joint ventures in chemicals.

In other sectors vital for a modern economy – for example, microchips – Saudi Arabia has taken tentative steps to develop a domestic manufacturing capacity, but China has not been prominent in this process.

The kingdom still shops at its great rivals, Taiwan and Japan, for these crucial items.

Perhaps one day the new generation of Chinese C919 passenger planes will be manufactured in Saudi Arabia, but the new flagship airline Riyadh Air is so far looking exclusively at Boeing and Airbus for its launch fleet.

Energy at the core

However Saudi-China trade develops in the future, the backbone of it will continue to be energy.

In the core trade in crude oil, Saudi Arabia remains China’s biggest single import partner, albeit one under pressure from cheaper Russian imports as a result of Ukraine war-related sanctions.

Furthermore, China is tied into long-term supply contracts with Aramco that cement this position for the foreseeable future, whatever the Russians do.

The Saudi energy minister Prince Abdulaziz Bin Salman laid out a smorgasbord of other energy related projects where the kingdom and China are collaborating, not competing, as he insisted.

These include, vitally, petrochemicals, which the kingdom sees as a major driver of demand, especially with rapidly developing crude-to-chemicals processes.

Recent multi-billion investments by Aramco in Chinese refining and petrochemicals processes are evidence of how important both countries see this sector.

Other energy projects in which China and Saudi Arabia share mutual interest are renewables, clean hydrogen, and – perhaps most significant in a geopolitical context – nuclear.

China is bidding, against US, Russian, French and Korean rivals, to construct Saudi Arabia’s first civil nuclear power plant.

The outcome of the nuclear tender could in some ways be seen as a litmus test not just for Saudi-China trade relationships, but for the broader and vexed question of Saudi Arabia’s future relationship with the USA.

While Saudi-Chinese trade has been booming across most sectors, the kingdom still relies on the USA for its advanced defence systems.

If this were to change, and Riyadh decided on a long-term defence sector relationship with Beijing, it really could be the occasion for America’s much-speculated “withdrawal” from the Arab world.

There is no suggestion this will happen any day soon, as was underlined by Prince Abdulaziz’s rejection of any “zero sum” thinking.

There is nothing “political or strategic” about Saudi Arabia’s relationship with China, he insisted. It was all “transactional”.

The Saudi-China relationship is evolving fast, that’s for sure. Just how far it goes is one of the biggest economic and geopolitical questions of the day.

Frank Kane is AGBI Editor-at-Large