Saudi Arabia seeks more Chinese investment as ties strengthen

The kingdom has ambitious foreign investment targets and is wooing Chinese investors in the mid-stream energy sector as well as industries, services, metals, mining and tourism projects

Chinese and Arab businessmen attend the 10th Arab-China Business Conference in Riyadh. AFP

Saudi Arabia's special economic zones that offer generous incentives for investors and the country’s continued push to diversify its economy have opened up a multitude of opportunities to attract Chinese investment.

Investment from China is already flowing, with agreements worth $50 billion signed during Chinese President Xi Jinping's visit to Saudi Arabia in December, however Saudi Arabia is hungry for more.

“I think this is just the beginning of the flow of Chinese investments into the kingdom,” Khalid Al Falih, Saudi Arabia’s Minister of Investment, told policymakers, government officials, investors and executives from top companies in China on Sunday at the opening of a two-day Arab-China Business Conference in Riyadh.

“The current investments are considerable, but they are still not meeting the aspirations and ambitions of the Saudi economy,” he said.

Ambitious plans by the Arab world’s largest economy to broaden its industrial base and develop sectors from petrochemicals to renewables and tourism, as well as multibillion dollar giga projects, should be an added attraction for Chinese investors, government officials said.

The kingdom, Opec’s biggest oil producer, aims to become a regional magnet for foreign investment and it is pulling out all the stops to achieve and exceed its FDI target.

China is already one of Saudi Arabia's largest trading partners, with bilateral trade in 2021 reaching $87.3 billion. Between January and October 2022, it climbed to $95.46 billion.

It is also a key export market for the kingdom’s hydrocarbons exports, with China importing about 1.75 million barrels of oil per day in 2022.

Saudi Arabia, however, is keen to expand its economic ties with the world’s second-largest economy and biggest importer of oil beyond the dominant hydrocarbons sector.

The kingdom aims to attract Chinese investment not only in the midstream energy sector but also in its non-oil economic sectors, including industries, services, metals and mining or tourism, among others.

“There are so many things that we want to do with them and equally they want to do with us,” Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said.

The kingdom is keen to build more oil-to-chemicals plants and refineries to capture growing demand for crude and chemicals in China.

“We will do it in China and we will do it here. We are going to build more crude-to-chemicals refineries and it is not just Aramco [ready for joint venture investments], it is also Sabic and others,” he told delegates at the King Abdulaziz International Conference Centre.

“We have great deal of ambition in so many things.”

There have been some announcements in the recent past and “I wouldn’t be surprised” if there are more, he added.

Apart from the oil and gas sector, “we will be doing a lot on renewables and a lot on localisation [of manufacturing] programmes,” with China to help develop the kingdom's economy, he said.

“We don’t have to be in a place where we have to set ourselves in competition with China, we have to set ourselves in a place of collaboration with China,” Prince Abdulaziz said.

China's overall outward direct investment reached $146.5 billion in 2022, up 0.9 per cent year-on-year.

Non-financial investment climbed 2.8 per cent on an annual basis to reach $116.9 billion, while the Belt and Road non-financial outward investments increased 3.3 per cent annually to $21 billion, according to EY estimates.

The kingdom, which aims to attract $100 billion in FDI annually by 2030, in April launched four special economic zones that offer companies financial and non-financial incentives.

The move is part of its push to increase contribution of FDI to national gross domestic product to 57 per cent by 2030, increasing it from just 0.7 per cent in 2015.

FDI inflows into the kingdom, climbed to $19.3 billion at the end of 2021, up from $8.1 billion recorded in 2015, according to the Ministry of Investment’s data.

The kingdom formally launched the four next generation zones – the King Abdullah Economic City, Jazan, Ras Al Khair and Cloud Computing, in the King Abdulaziz City for Science and Technology – at the end of May.

They have already attracted $12.6 billion from investors across maritime, mining, manufacturing, logistics and tech sectors. The investment pipeline has grown to $31 billion as interests grow to set up base in the zones that also offer tax rebates for businesses.

In October, Saudi Arabia also opened the Special Integrated Logistics Zone at King Khalid International Airport in Riyadh, which is offering $2.7 billion in aggregate incentives to investors. It aims to attract $10.7 billion in FDI within the first two years of its establishment.

“With deep concessions offered in special economic zones, you are seeing China boosting its investments, helping to bring Chinese technology to the kingdom and setting up companies here,” Monica Malik, chief economist at Abu Dhabi Commercial Bank said.

“Saudi Arabia is also a large part of the BRIC [Brazil, Russia, India, and China] story and as China looks to build its geopolitical role, having deeper economic and investment ties with the largest Arab economy is certainly important.”

The development of these special zones is part of Saudi Arabia’s overarching economic transformation programme, the Vision 2030, which seeks to cut the kingdom’s reliance on hydrocarbon revenue to fuel its economy.

The programme seeks to increase the private sector’s contribution to GDP to 65 per cent by the end of this decade, from 40 per cent in 2015, before the vision was launched.

The country’s industrial base is already expanding at a rapid pace as the number of factories in the kingdom has grown to 10,518 at the end of 2022 from 7,206 in 2015.

“Apart from hydrocarbons and downstream areas, Saudi Arabia is really looking to build its industrial and manufacturing base and that is where they want Chinese companies to come and manufacture in Saudi Arabia,” Ms Malik said.

The kingdom, like its peers in the six-member economic bloc of GCC, is seeking broader trade and economic ties with its partners across the globe and China is on top of the list of oil-rich Gulf economies.

China’s trade with the GCC countries has grown consistently over the years. It is also seeking a free-trade agreement with the bloc to further broaden the scope.

“The Gulf is one of the fastest-growing regions in the world with significant amounts of investment. This creates significant business opportunities for China and this is more than a commodity play,” Scott Livermore, chief economist at Oxford Economics Middle East, said.

Jon Alterman, the chair of Global Security and director of the Middle East programme at the Centre for Strategic and International Studies agreed.

“China’s deepening economic ties to the Middle East make sense as the commercial relationship with Middle Eastern countries has been growing for decades,” he said.

“Chinese firms have built billions of dollars in infrastructure in the Middle East, and China is a major source of manufactured goods in the region, as it is around the world.”

Although China has been driving the crude oil demand for many years, it is equally keen to form petrochemical joint ventures. Cloud computing, technology and electric vehicles manufacturing are other areas where the two countries can find synergies, Mr Livermore said.

“The energy sector will be a clear target but Chinese businesses will also want to be involved [in other sectors].”

Closer economic ties with China between the kingdom and other economies in the region would not only help them achieve their “ambitious FDI goals” they should “contribute to growth and knowledge/technology development that aids productivity of the non-oil sector”, he added.