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As China-Saudi ties develop, so will cross-border yuan use, ratings agency says

  • With more trade and projects planned between China and Saudi Arabia, S&P Global Ratings says, use of the yuan is likely to go up in turn

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China’s developing relationship with Saudi Arabia could also benefit its efforts to internationalise the yuan. Photo: Xinhua
Ralph JenningsandZhao Ziwen

A deepening of economic relations between China and Saudi Arabia will advance the use of the yuan for oil purchases, S&P Global Ratings said in a report on Tuesday – though it will take time for those trades to become profitable.

Non-oil linkages between the two countries, galvanised by President Xi Jinping’s visit to the Persian Gulf state in December 2022, were predicted to “provide more outlets” for the Chinese currency’s use in payment on bilateral projects “across a widening range of sectors.”

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Riyadh’s Saudi Vision 2030 initiative for economic transformation will make China-Saudi relations “very different from what we’ve seen in the past” and elevate Saudi use of the yuan, said Charles Chang, S&P’s Greater China country lead.

“This involves many sectors, larger sums of financial flows both ways and many more companies,” Chang said in an interview.

“Economic and strategic alignment in terms of development plans” could further elevate the yuan in Saudi Arabia despite wider geopolitical tensions, he added.

The tripling of China’s trade with the Middle East observed over the past two decades, report authors said, adds potential for the broader use of the yuan among Gulf states.

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China has been promoting the yuan as an alternative currency in international trade – and as a reserve currency – to keep its cross-border financial activity stable in the face of exchange-rate risks and a potential foreclosure of access to foreign institutions or international payment systems.
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The yuan’s share of world trade tripled over the past two decades, S&P said, from 4 per cent to 13 per cent.

Yuan-for-oil deals would let China buy fuel without the threat of intervention from its chief geopolitical competitor – the United States – whose dollar serves as the global reserve currency, and carries a considerable amount of economic heft.
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