Trade between the two nations is growing

PUBLISHED : Tuesday, 21 September, 2010, 12:00am
UPDATED : Tuesday, 21 September, 2010, 12:00am

As one of the most prosperous countries in the world, Saudi Arabia has a significant number of commercial interests on the mainland.

And Hong Kong, as one of Asia's prime economic hubs, is also involved.

Oil is the most obvious trading entity. Saudi Arabia holds a quarter of the earth's proven oil reserves, is the world's largest exporter of petroleum, and plays a leading role in Opec, a cartel of oil-producing countries.

This makes the kingdom a good match for the mainland, which has a huge appetite for oil, exacerbated by its burgeoning economic growth.

The two countries initially set a target of trade volume at US$40 billion for this year. However, this was reached early, in 2008. Now, forecasters are predicting that a goal of US$60 billion could be achieved before 2015.

Trade has shown rapid growth over the past decade.

Between 2003 and 2008, Sino-Saudi trade notched up annual growth rates of between 30 and 50 per cent.

The mainland's main exports to Saudi Arabia include mechanical and electrical products, and textiles, albeit in relatively small amounts.

However, the mainland imports vast quantities of crude oil from Saudi - more than a million barrels per day last year. The kingdom now accounts for more than a quarter of all the mainland's oil imports.

And the mainland's oil need is set to grow as consumption topped 8.5 million barrels a day last year, a huge increase compared with 4.8 million in 2000.

The mainland is expected to account for a third of the world's consumption growth this year.

Oil marks the crux of the relationship between China and Saudi Arabia. In addition to mainland imports, the kingdom is investing heavily to increase the mainland's capacity to refine Saudi heavy crude. China's involvement in Saudi Arabia took a considerable step forward when a consortium embracing corporations from both countries - including China Railway Construction - won a contract to build a high-speed railway line between Jeddah and the holy cities of Mecca and Medina.

Stretching 440 kilometres, and known as the Haramain High Speed Rail Project, the line is expected to carry trains travelling at more than 300km/h.

Costs have been estimated at US$5.3 billion, and the line will considerably ease transport congestion during the annual Haj pilgrimage.

Hong Kong's trade with Saudi Arabia is low key by comparison, but it maintains a fiscal presence via the Saudi British Bank, an affiliate of HSBC.

Last year, between January and November, Hong Kong's total exports to Saudi Arabia grew by just under 5 per cent to US$529 million, which was slower than the year-on-year increase of about 33 per cent in 2008.

Hong Kong's main exports to Saudi Arabia included telecommunications equipment and parts - roughly one third of the total - office machines and computers, and watches and clocks. Trade between Saudi Arabia and Hong Kong has received a boost since January 2008, when tariffs on computers, semiconductors and other information technology products were removed.

Exports of office machines and computers have increased by three-fold in recent years, becoming the second major export items to Saudi Arabia.

By contrast, Hong Kong's imports from Saudi Arabia went up by about 5 per cent to US$422 million during the first 11 months of last year.

The imported items were chiefly hydrocarbons, polymers of ethylene in primary forms, other plastics in primary forms, and a small amount of telecommunications equipment and parts.

For executives based in Hong Kong or the mainland, the prospects of doing business with Saudi Arabia are good.

The kingdom has been rated as the 13th most economically competitive country in the world, according to the 2010 International Finance Corporation World Bank annual 'Doing Business' survey.

The report focused on the rapid rate of economic growth among Middle Eastern countries, specifically Saudi Arabia as a result of economic sector reform. Saudi Arabia was rated as the best place to do business in the whole of the Middle East and the Arab world for the fifth year running, and has steadily climbed in the overall global ratings from 67th place in 2004.