Saudi Arabia did not recognise the PRC in 1949 and maintained diplomatic and trade relations with Taiwan (Republic of China [ROC]). Relations started to improve during the 1980s due to economic reforms in China which emphasised the modernisation and industrialisation of China and required China to look for new sources of energy, turning its attention to the Persian Gulf including Saudi Arabia. Diplomatic relations between Saudi Arabia and China were established in July 1990 and within the next decades grew into a strategic friendship in 2008 and a comprehensive strategic partnership in 2016.
Economic & Political Ties
China sees Saudi Arabia as the largest economy in the Arab world which is a reliable large-volume oil supplier since its position is stable and not subject to international isolation and sanctions like Iran. Saudi Arabia is perceived as a reliable political partner now supporting the One China policy. China also values Saudi political support for the Chinese fight against East Turkestan Islamic Movement (ETIM) terrorism in Xinjiang due to the Saudi religious legitimacy among the global Muslim community. Changes in mutual perception have been intensified by increased cultural cooperation since the 1990s. These include tourism, student exchanges, and cultural cooperation within the BRI framework such as the people-to-people exchanges within the Saudi–Chinese Youth Forum. Political and diplomatic relations intensified after 9/11, when both countries joined the US war on terror, and after the “Arab Spring” which both China and Saudi Arabia opposed on principle, with Saudi Arabia fearing instability in the Gulf and China fearing the rise of Muslim extremism in Xinjiang province.
Trade
Saudi Arabia exports mostly oil and natural gas, petrochemicals, raw materials, and minerals to China. The latest report published by the Saudi General Authority for Statistics in February 2019 indicates that China is the top country for non-oil exports for Saudi Arabia as well as the top partner country for Saudi imports. As a part of the BRI, Saudi companies are also investing in the north-western Hui Muslim provinces in China. China’s exports to Saudi Arabia focus mostly on machinery, infrastructure, construction industry, information technology, car industry, banking, telecommunication, and health services. In 2015, there were 158 Chinese companies established in the Saudi market and about 20,000 Chinese expats living in Saudi Arabia.
Chinese investments in Saudi Arabia as a part of the BRI include construction projects, infrastructure building, investments in joint research, and training facilities in telecommunications. The most significant projects implemented by Chinese companies in Saudi Arabia included the agreement concluded in 2009 to construct the Mecca Light Metro (MLM) by the China Railroad Construction Company. The MLM was put into operation in only sixteen months, providing a significant ease of transport for millions of Muslims joining the 2011 hajj. The project became a major success in the Muslim world and its cultural contribution to Sino–Saudi cooperation thus clearly exceeded its economic value.
Oil plays a special role in Sino–Saudi mutual relations. In March 2019, the Saudi oil exports to China surpassed those of Russia (since in 2014 it has supplied 16 per cent of China’s oil imports). China pays special attention to the comprehensive strategic development of its Saudi energy relations, focusing on Chinese investments in refineries in Saudi Arabia, Saudi investments in oil facilities in China, and Chinese participation in geological surveys in Saudi Arabia. Cooperation and joint investments between the Chinese state-owned Sinopec company and the Saudi oil company Aramco include joint exploration of natural gas in Section B in the Rub Alkhali Basin since 2004. Chinese investments in Saudi Arabia include development of the Ghawar oil field and the Yanbu joint refinery project of Aramco and Sinopec at the Red Sea launched in 2012. This project is of special importance for China given the regional instability in the Gulf as it enables it to export oil from Saudi Arabia’s west coast, without having to pass through the contested Strait of Hormuz, thus avoiding the local tensions between Saudi Arabia and Iran.
Energy cooperation also includes Chinese assistance to the Saudi nuclear programme. China should help Saudis to build nuclear reactors based on the Sino–Saudi agreement from 2016: the first should be functioning by 2022 and fifteen more by 2032. Although their purpose is officially peaceful with the aim to provide an alternative source of energy to oil, they also have political importance in hedging against the Iranian nuclear programme.
China’s Persian Gulf Economic Diplomacy
Although China seeks to hedge its economic bets in the Persian Gulf, it is becoming much more difficult for China to balance its relationship with Iran and its partnership with Saudi Arabia. It is clear that Iran and Saudi Arabia are both competing for Chinese support in their regional aims. Trade data published by the World Bank and the United Nations Conference on Trade and Development show that in 2017 total Chinese exports to Iran and Saudi Arabia were almost at the same level, USD 18.58 billion and USD 18.38 billion, respectively. Although imports from Saudi Arabia were higher than those from Iran, USD 31.76 billion versus USD 18.55 billion respectively (WITS, 2019a) In terms of oil, Saudi Arabia is the more significant supplier since in 2014 it supplied 16 per cent of China’s oil imports compared to Iran’s 9 per cent (EIA, 2015), which accounts for much of the higher level of Chinese imports from Saudi Arabia.
Outlook
China has every reason to hedge its bets in case its oil imports from one supplier or the other are impeded. Such an eventuality could easily arise from further intensification of the mid-2019 tensions in the Strait of Hormuz, which included several seizures by Iran of foreign oil tankers. The September 2019 drone attacks which cut Saudi oil output by half and temporarily reduced the global oil supply by 5 per cent thus demonstrate the need for China to ensure diversification in its suppliers and to maintain good relations with Iran as well as Saudi Arabia. Hence China is forced to continue with its strategic hedging policy in the Persian Gulf as it strives to implement the regional connectivity and national economic security goals of the BRI. By seeking to acquire more influence with Iran and Saudi Arabia and build up its economic interests in the Persian Gulf, China is steadily eroding US regional hegemony. Of crucial importance are the implementation of the BRI and the attainment of China’s comprehensive national security goals, including continued levels of energy imports from Iran and Saudi Arabia.
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Source: This article was originally part of a longer article from the Journal of Current Chinese Affairs: China’s “Belt and Road” Economic Diplomacy in the Persian Gulf: Strategic Hedging amidst Saudi–Iranian Regional Rivalry