The already strong bilateral relations between Saudi Arabia and China are hitting new levels, as the Kingdom and the Chinese Tiger have decided to set up a joint US$20 billion investment fund. The fund was announced by Saudi minister of energy Khalid Al Falih, after meeting with Chinese vice-prime minister Zhang Gaoli in Jeddah. Falih indicated that both countries will share the total investments and will be splitting the revenues of the fund, which is going to target projects in infrastructure, energy, mining and materials. This is not a surprise, as Saudi Arabia has already been heavily investing in energy and petrochemicals in China the last decades. Saudi Aramco’s main downstream investments lately almost all have been focusing on increasing the Saudi footprint in downstream China, mainly to lock in Chinese demand for crude and products. Falih also reiterated that both countries will sign around $20 billion in value of projects in the coming days. As reported in the press, Saudi Arabia will be willing to invest in the fund partly in yuan. The current visit by the Chinese is of significance, as it could be a precursor to a hefty Chinese involvement in the eagerly awaited Saudi Aramco IPO next year. In March, during a visit of the King Salman to China, the two countries signed several energy and space technology deals worth $65 billion.
Saudi Arabia has, in recent years, shown a willingness to form more in-depth relationships with its main Asian customers, China, India and Japan. The Chinese energy demand, which is still the main driver of the global oil and gas market growth, is considered to be vital for Saudi Arabia’s future. The Kingdom is currently in a heavy battle with Russia and arguably Iran for the title of China’s biggest oil supplier, a title that Russia took from Saudi Arabia at the start of this year. Several analysts have been very worried about this development as it could weaken the IPO of Saudi Aramco. However, Aramco’s prominent position in the Chinese market, and the ongoing investments that the Saudi oil giant is making in downstream production and capabilities in China, will contain any negative repercussions from loss of market share. In the long-run, Aramco’s position in China will only strengthen, which will allow the Kingdom to lock in a hefty portion of its export volumes.
This post was published at Zero Hedge on Aug 29, 2017.
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