President Xi’s three-day state visit to the Kingdom of Saudi Arabia last week was only his third trip aboard since the outbreak of the pandemic.
Saudi Arabia is an important strategic partner for China due to its role as the lynchpin of both the Gulf Cooperation Council (GCC) and Arab League. It is also the largest crude oil supplier to China.
A new pragmatic partnership?
Xi’s Middle Eastern visit has been in preparation for quite a while and took place in the midst of souring US-Saudi Arabian ties after OPEC, the coalition of oil producing countries led by Russia and Saudi Arabia, announced that they would cut output, threatening to push oil prices higher across the world. It is noteworthy that Xi’s state visit to Saudi Arabia coincided with the first ever China-Arab States Summit and the China-GCC Summit.
The China-Arab States Summit is the culmination of nine ministerial-level China-Arab States Cooperation Forums. The resulting summit was first proposed by Saudi Arabia back in 2019 and subsequently fast-tracked from early 2022.
Against the backdrop of US-China strategic competition and the US’ pivot away from the Middle East, both China and Saudi Arabia are seeking to elevate bilateral relations and consider each other as a priority in their respective foreign relations. During Xi’s visit, the China-Saudi Arabia comprehensive strategic partnership agreement was signed and it was agreed to take turns to host biennial meetings between the heads of state of the two countries.
Saudi Arabia is the largest trading partner of China in the Middle East, and at the same time China has long been the No.1 trading partner of Saudi Arabia. In 2021, the bilateral trading volume reached US$ 87.31 billion, a 30.1 per cent year-on-year growth despite the headwinds brought by the coronavirus pandemic. On top of the economic complementary relationship between Beijing and Riyadh, Arab states have long been China’s biggest crude oil supplier. In 2021, China imported 265 million tons of crude oil from the Arab world, amounting to 51.6 per cent of Chinese oil imports.
Beyond crude oil, state-owned Sinopec has signed a 27-year sale and purchase agreement with QatarEnergy, the world's number-two LNG producer, a deal boasting the longest LNG supply agreement in the history of the industry.
China is the largest trading partner of the Arab League countries in aggregate, with a trading volume of US$330.3 billion in 2021, a 150% increase compared to 10 years ago. Chinese FDI stock in the Arab world attains US$23 billion in 2021, a factor of 2.6 more than a decade ago.
Further, during Xi’s trip to the region, Saudi and Chinese firms also signed 34 investment agreements in green energy, information technology, cloud services, transport, logistics, medical industries, housing and construction. Other deals worth around 30bn US$ include a MoU between Huawei and the Saudi government for cloud computing and data centers, or a MoU between the Chinese ENOVATE Motors and Saudi-based Sumou to build an electric vehicle factory in Saudi Arabia with a capacity of 100’000 cars per year.
It is expected that this new pragmatic partnership will go beyond commercial agreements. The deals will also incentivize Saudi Arabia to join China-led multilateral frameworks such as BRICS and the Shanghai Cooperation Organization (SCO).
Hedging against Washington’s pivot away from the region
In comparison, the traditional Saudi-US relations have seen steady decline since Obama was elected as president with the exception of the Trump administration. The Obama administration’s willingness to reach out to Tehran and voicing public support for the Arab uprisings sowed seeds of discontent within Riyadh. At the same time, the Democratic administration was frustrated with the Saudis’ willingness to bankroll counterrevolutionaries in the region and their opposition to the nuclear agreement with Iran.
The natural gas revolution and the dramatic increase in shale oil production in the US rendered Middle Eastern oil and the defense of Saudi Arabia less important in the minds of American policymakers. Climate change has added impetus to this dynamic.
That said, as long as Sino-Saudi relations continue to be viewed through the lens of Saudi-US relations and not in its own right, it is hard to see how China could supplant the US’ dominant role in Saudi Arabia and the Middle East. Above all, China may never become the security guarantor of Saudi Arabia given American superiority in weapons system and projection capability.
Even in the area that China hopes to make a breakthrough, it could be much more on paper than in action. Xi said that China would work with Gulf nations to start Chinese Yuan settlement of oil and gas trades in the next three to five years, a move likely aimed at boosting Beijing’s ambitions to push the Chinese currency’s internationalization. However, any agreement to settle oil trade in Yuan between Beijing and Riyadh is likely some ways off because the current petrodollar system does not only mean settling oil sales in the US dollar, but also using the dollar in the international pricing of oil barrels.
So, it is more accurate to describe the enhanced Saudi-China relations as a hedging strategy in both capitals. For the Saudis, a closer relationship with Beijing could hedge against Washington’s pivot away from the region and its progressive agenda like green energy and protection of human rights. From the perspective of China, stable energy supplies and bringing non-American countries into its economic orbit are what it has been pushing for since Washington began its drumbeat of containing China spanning areas from technology to commercial ties.
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