China and Saudi Arabia pave the way for closer economic collaboration

Saudi Arabia is the world's top dog when it comes to exporting oil, and China is the king of energy consumption.

China and Saudi Arabia pave the way for closer economic collaboration
Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks as event moderator Dan Murphy reacts during 10th Arab-China Business Conference in Riyadh, Saudi Arabia, June 11, 2023. Reuters/Ahmed Yosri

The backstory: Saudi Arabia is the world's top dog when it comes to exporting oil, and China is the king of energy consumption. So, it's no surprise that these two countries have tight ties when it comes to oil trade. China actually relies on Saudi Arabia for a significant chunk (about 18%) of its crude oil purchases. That makes Saudi Arabia China's top oil supplier. And it's not just a one-way street. Saudi Arabia plays a big role in China's trade with Arab countries, making up around 25% of the total trade in that region.

But here's the thing. Saudi Arabia wants more than just oil profits. The kingdom is keen to diversify its economy and move beyond relying so heavily on oil. So, the country is opening its doors for investments in sectors like healthcare, infrastructure, recreation and tourism. It's got a grand plan called Vision 2030 that started back in 2016. The goal is to reduce its dependence on oil and join the ranks of the world's top 15 economies by 2030. It’s also worth noting that in 2022, Saudi Arabia saw the fastest growth in the world among its largest economies.

More recently: Last December, Chinese President Xi Jinping paid a visit to the kingdom, and they sealed the deal on a bunch of agreements. We’re talking about 34 agreements covering all sorts of sectors like green energy, tech, transportation and more. Xi even called it a groundbreaking diplomatic initiative in the Arab world.

But they didn't stop there. In March, Saudi Aramco, the state oil giant, made some serious moves to solidify its position as China's top crude oil provider. The company announced not one but two major deals. Basically, it will be pumping out 690,000 barrels of crude oil daily to Rongsheng Petrochemical and Zhejiang Petrochemical.

The development: At the 10th Arab-China Business Conference held in Riyadh, bigwigs from China and Saudi Arabia came together and made some new promises to strengthen ties. Prince Abdulaziz bin Salman, the Saudi energy minister, emphasized the importance of collaboration rather than competition with China. He's all about working together with China to protect their emerging industries. Saudi Investment Minister Khalid al-Falih is also hoping the two countries can finally make some progress on that long-delayed China-Gulf Cooperation Council Free Trade Agreement.

On the Chinese side, Hu Chunhua, the vice-chairman of the Chinese People's Political Consultative Conference, took the stage and talked about China's dedication to supporting businesses from both China and Arab countries. Their goal is to create more investment opportunities and strengthen trade, investment and financial ties with Saudi Arabia. It's all about fostering a win-win situation for the nations.

Key comments:

“China is going to progress pragmatically with Saudi Arabia on revitalising our respective civilisations. We will deepen cooperation on production capacity and basic infrastructure, and in strengthening trade, investment and financial relations, in order to help diversify Saudi Arabia’s economic development,” said Hu Chunhua, vice-chairman of the Chinese People’s Political Consultative Conference (CPPCC).

"Chinese technology firms have read the writing on the wall and see the Saudi Vision 2030 transformation agenda as an invitation for longer-term commercial engagement with Saudi customers," said Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington.

“We came to recognize the reality of today that China is taking, had taken a lead, will continue to take that lead. We don’t have to compete with China, we have to collaborate with China,” said Energy Minister Prince Abdulaziz bin Salman to CNBC on Sunday.

"From the perspective of both capital and new market, the Middle East, Saudi Arabia are really good new choices for Chinese companies and investors," said Henry Zhang, president of Hong Kong-based private equity firm Hermitage Capital.