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By Rachna Uppal
DUBAI, Dec 6 (Reuters) – Trade and investment ties between China and the Arab Gulf states are expected to feature prominently in President Xi Jinping’s visit to Saudi Arabia this week, as the region increasingly looks east to drive economic transformation at home for the post-oil era.
China, the world’s largest energy consumer, is the main trading partner of Gulf oil and gas producers and while economic ties remain anchored by energy interests, bilateral relations have expanded under the influence of infrastructure and technology in the region.
Saudi Arabia is China’s largest oil supplier, accounting for 18% of China’s total crude purchases, and state-run Saudi Aramco has annual supply contracts with half a dozen Chinese refineries.
Riyadh said that strengthening trade ties and regional security would be
priorities
during Xi’s visit, during which the kingdom will host China-Gulf and China-Arab summits that diplomats say will include dozens of agreements and memoranda of understanding.
Beyond energy, the Gulf Cooperation Council (GCC) states provide markets for Chinese goods, construction contracts and investment opportunities in infrastructure, manufacturing and digital economies that match Beijing’s Belt and Road Initiative.
“The GCC wants FDI (foreign direct investment) that not only meets local demand, but also enables these economies to integrate into global supply chains,” said Fareed Mohammadi, managing director of SIA Energi International.
“Chinese companies will help with that, first at the Asian regional level and then beyond.”
Saudi Arabia, the world’s largest exporter of crude oil and the largest Arab economy, aims to reduce reliance on oil by creating new industries that can create jobs for Saudis as the government launches projects while FDI lags.
It is competing with the UAE’s regional commercial hub to become a transport and logistics hub, including the development of seaports to take advantage of the region’s strategic position between Asia, Africa and Europe.
Saudi Arabia and the UAE are also investing in future technologies as a pillar of economic diversification, which has received a boost in the global transition away from fossil fuels.
Chinese tech giant Huawei – which has been involved in building 5G networks in most Gulf states despite US concerns – is finalizing a site for a new data center in Saudi Arabia that would be the second in the region after Abu Dhabi, a senior regional executive told local media in August. Online giant Alibaba has partnered with STC Group for cloud services in Saudi Arabia.
Chinese companies are eyeing construction in Saudi mega projects such as the $500 billion NEOM zone, and opportunities in mining and manufacturing as the kingdom moves to build local content, including emerging defense and automotive industries.
BALANCING
How Saudi Arabia and other Gulf states manage Chinese and Western supply chains in sensitive areas such as critical national infrastructure is likely to remain a point of friction with key security partner the United States, analysts said.
“Managing these digital divides, dividends, unbundling and unbundling is central to economic progress in Saudi Arabia, the GCC and the wider Middle East and North Africa,” said Adel Hamaizia, Managing Director of Highbridge Advisors.
Gulf Arab officials said that while Washington remains a key strategic partner, it is important for the region’s national economic and security interests to deepen ties with other partners, which include China and Russia.
“Our trade relations are increasingly looking to the East, while our primary security and investment relations are in the West,” senior UAE official Anwar Gargash said last month.
Trade between the GCC and China has doubled between 2010 and 2021, according to a report by London-based think tank Asia House. However, talks on a free trade agreement have been dragging on since 2004, and sources say talks of an agreement in the near future are premature.
Beijing’s primary motivation for greater cooperation with the Gulf remains rooted in its dependence on energy imports, while Arab producers continue to rely heavily on hydrocarbon revenues to diversify.
Russia, a member of the OPEC+ oil producer alliance along with Saudi Arabia, is increasing sales to China of discounted oil after facing Western sanctions over its invasion of Ukraine, which Moscow calls a “special military operation.”
“All oil exporters from the region will want more information on China’s plans to lift the COVID restrictions, especially those like Iraq and Oman that are so dependent on that market,” said Karen Yang, a senior fellow at Columbia University’s Center for Global Energy Policy. .
(Additional reporting by Yousef Saba; Editing by Ghaida Ghantous and Nick Macfie)
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