Saudi Arabian Crown Prince Mohammed bin Salman Al Saud’s two-day visit to China scheduled to start on Thursday is expected to boost bilateral trade and economic relations, with joint cooperation in third-party markets and yuan-denominated crude trading expected to be highlighted.
The visit comes as Saudi Arabia and China eye promising prospects in cooperation as they build on the achievements of previous joint committee meetings. The visit is also expected to deepen integration between the Saudi Vision 2030 initiative and the China-proposed Belt and Road Initiative (BRI), according to media reports.
The Vision 2030 initiative seeks to diversify the Saudi economy and reduce its reliance on crude oil, while the BRI aims to use China’s infrastructure competitiveness to boost world economic connectivity and create new economic growth points along new trade routes.
As the largest trading partner of Saudi Arabia, China’s trade volume with Saudi Arabia grew by 23.2 percent in 2018, figures from the General Administration of Customs showed in January.
Energy cooperation
Saudi Arabia is a top crude exporter to China and energy cooperation, especially energy finance, is expected to be a highlight of the crown prince’s visit, an industry expert said.
Jin Lei, an associate professor at the China University of Petroleum, said observers are waiting to see if a currency swap agreement will be signed during or after the visit, given the importance of bilateral oil trade.
“Amid a global trend of de-dollarization, a currency swap agreement would alter the landscape of crude trade between Saudi and China, and it could help boost participation of Saudi Arabia in China’s yuan-denominated crude futures exchange. Its current involvement is not impressive,” Jin told the Global Times on Thursday.
China opened a yuan-denominated crude oil futures exchange in Shanghai in 2018, which has garnered the participation of some foreign agencies. After less than one year of operation, the exchange become the No.3 global crude exchange in terms of trading volume, according to media reports.
“Saudi Arabia is very likely to take part in yuan-denominated crude futures trading,” noted Jin.
About 70 percent of Saudi Arabia’s crude exports head for Asian markets. In 2018, China imported about 1.6 million barrels per day of crude from Saudi Arabia, accounting for 15 percent of China’s overall crude imports.
Third-party markets
Third-party market cooperation is also expected to be a highlight of the trip by the Saudi crown prince to Asia, experts said.
“Companies in China, together with their foreign counterparts, have already cooperated in various projects in many third-party markets,” Li Jie, vice president of SEPCOIII under PowerChina, a Chinese energy company, told the Global Times on Thursday.
China and Saudi Arabia can complement each other in the third-party market cooperation. “Saudi Arabia understands more of the local rules and procedures while China has more experience in construction,” said Li.
Pakistan was the first stop of the crown prince’s trip, and agreements valued at $20 billion were announced between Saudi Arabia and Pakistan on Sunday.
“As the first third-country joining the China-Pakistan Economic Corridor, Saudi Arabia and China can use this experience in other third-party markets along the BRI,” Zhou Rong, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Thursday.
The path for Chinese companies expanding in Saudi Arabia is a challenging one. “Chinese companies were not recognized when they first entered the Saudi Arabia market, which was monopolized mostly by companies from Europe, the US, Japan and South Korea,” Li said.
But Chinese companies are more efficient than their competitors. Combined with slightly lower labor costs, projects conducted by Chinese companies are the most cost-efficient. Companies from China win acceptance and approval in local markets as time goes by, Li added.
The integration of the Vision 2030 initiative and the BRI will mean more opportunities. “But Chinese companies have to seize these opportunities by fully utilizing their advantages,” Li said.
China and Saudi Arabia are also carrying out cooperation in science, manufacturing and nuclear energy, according to media reports.
In 2018, bilateral direct investment surged by more than 300 percent.
Through Vision 2030, Saudi hopes to unlock its investment potential with its strategic location, rich natural resources and young, digitally connected population and China is a welcome partner, Ibrahim Al-Omar, governor of the Saudi Arabian General Investment Authority, said in a statement.
