China, Saudi Arabia Agree US$65 Billion OBOR Deal with European Implications

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By Dezan Shira & Associates

Saudi Arabia’s King Salman has been visiting Beijing this week, where a reported US$65 billion in deals have been hammered out between the two nations. China is energy poor, and is searching globally for investments – including development and long-term deals – that can secure its energy needs way into the century, making oil and gas rich nations of specific interest to Beijing.

Not surprisingly the Saudi deals are energy based, though not exclusively so. Saudi Arabia also has a One Belt, One Road (OBOR) type initiative named “Saudi Vision 2030” and the new bilateral investment deals cater for both.

Like China, Saudi Arabia is also undergoing economic restructuring in the wake of decreasing oil revenues, and the Saudi Vision 2030 calls for foreign involvement in its privatization program, including power generation, petrochemicals and housing. The Saudi National Transformation Program (NTP) is part of the Vision 2030 initiative, and calls to double foreign direct investment by 2020.

Under the NTP, each Saudi Ministry has been given a set of strategic goals. The Ministry of Energy, Industry and Mineral Resources is tasked with increasing non-oil commodity exports. It aims to create an attractive environment for both local and international investors, and will establish specific zones with competitive advantages to enhance investments.

The Ministry of Housing is set to improve the real estate sector, and increase its contribution to GDP, while enabling citizens to obtain a suitable home. Last year the Saudi housing minister signed a Memorandum of Understanding (MoU) with China for cooperation on the construction of 100,000 homes in al-Ahsa Province in eastern Saudi Arabia. The Saudi General Authority for Civil Aviation has plans to privatize all 27 of its airports between now and 2020, and again this is expected to be of interest to Chinese developers.

The country already has a long history of working with Chinese state-owned oil companies. Numerous MoUs have been signed between the two governments, as well as several between Saudi and Chinese companies. These include a Saudi venture with China’s North Industries Group to examine building refinery and chemical projects, while Saudi Basic Industries Corp (Sabic ) and Sinopec have agreed to develop more petrochemical projects in China and Saudi Arabia. Sinopec and Sabic already have a 50-50 joint venture, Sinopec Sabic Tianjin Petrochemical Co (SSTPC), which was set up back in 2010 and owns petrochemical plants in the Tianjin Binhai New Area.

Saudi Aramco, which is currently contemplating a global IPO, already has close ties to China, which are being developed further. It holds a stake in the Fujian Refining & Petrochemical Company. Sinopec is a joint venture partner with Aramco in the YASREF refinery on the Red Sea Coast. This facility, which is the key anchor project in the Yanbu Industrial City, is one of the most important elements of Aramco’s downstream refining portfolio.

The deals are not just energy related, but seen by China as OBOR projects as they seek in part to link and influence Europe directly to China via Saudi Arabia, and especially via gaining control of energy resources and infrastructure.

 

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