China and Saudi Arabia to team up on US$20 billion investment fund

Project to bolster Beijing’s plans to expand its economic influence in the Middle East

PUBLISHED : Thursday, 24 August, 2017, 9:49pm
UPDATED : Tuesday, 28 November, 2017, 10:31am

China and Saudi Arabia will set up a joint US$20 billion investment fund, a top Saudi official said on Thursday, as Beijing takes another step to expand its economic footprint in the oil-rich Gulf region.

Saudi Energy Minister Khalid Al-Falih said the two countries would evenly share the costs and profits of the fund, which would invest in infrastructure, energy, mining and materials.

“It is preliminary at this stage, but the commitment from the top is there,” he said on the sidelines of a Saudi-Chinese economic conference in Jeddah.

Al-Falih also said 11 business deals worth around US$20 billion would be signed with China this week.

The Saudi minister also met Vice-Premier Zhang Gaoli in Jeddah to discuss cooperation.

During the conference, Saudi vice-minister of economy and planning Mohammed Al-Tuwaijri said Riyadh would be willing to consider making some of its contributions to the new fund in yuan.

“One of our main objectives is to diversify the funding basis of Saudi Arabia,” Al-Tuwaijri said.

“We will be very willing to consider funding in renminbi and other Chinese products, and Industrial and Commercial Bank of China and other divisions have shown interest for us to do that.”

The two countries signed US$65 billion worth of deals in March in areas ranging from energy to space technology.

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The emergence of the fund comes as Saudi Arabia is eager to regain its former top spot as China’s biggest oil supplier – it was overtaken by Russia last year. China is also the Arab nation’s biggest trading partner, with bilateral trade reaching US$42.36 billion last year.

Robert Mason, director of the Middle East Studies Centre at The American University in Cairo, said Saudi Arabia’s willingness to consider funding in yuan reflected the rise of the currency in some markets.

“In Riyadh, with growing prospects for bilateral trade and investment with Beijing, there is a clear incentive to use it, albeit on a limited basis at present,” Mason said.

“China’s energy markets are a springboard for which to launch these new activities, as there is a complementary energy-based economic relationship.”

China’s expanded economic interests in the region could also make it a bigger player in Gulf security.

“The $20 billion [joint investment fund] is relatively small ... but it could signal much greater cooperation in the future, favouring the oil-rich Gulf states eager to cooperate with China,” Mason said. “What will be interesting to see is how China continues to balance its relations with Iran and Saudi Arabia, both of which are engaged in a bitter sectarian and political battle for influence across the region.”

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China has sought to expand its influence in the Middle East, including lobbying for support of its “Belt and Road Initiative” of infrastructure projects across Asia, the Middle East, and Europe.

Timo Kivimäki, professor of international relations at the University of Bath, said China had tried to convince neighbours and energy-producing nations that economic cooperation would be useful.

“Oil producers and many neighbouring countries see cooperation with China in a very positive light, and partly this is related to the failure of US soft power in the countries that China sees as a priority,” Kivimäki said.

“China has power within [the] sphere of economic influence, and to some extent Saudi Arabia is now entering this sphere.”

Additional reporting by Reuters