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Geopolitical factors, as well as Saudi Arabia’s domestic outlook, may limit the prospects for this relationship.
Chinese Premier Li Keqiang, right, shakes hands with King Salman of Saudi Arabia at the Great Hall of the People in Beijing (March 17, 2017).
On Jan. 18, China’s Ambassador to Saudi Arabia Li Huaxin praised Saudi Arabia’s Vision 2030 allocation and called for closer integration between Saudi Arabia’s economic diversification efforts and the Belt and Road Initiative (BRI). Li also expressed enthusiastic support for Saudi Crown Prince Mohammed bin Salman’s initiative. anti-corruption campaign, saying its efforts for the rule of law in Saudi Arabia would increase the country’s attractiveness as an investment destination for Chinese companies.
Although Li’s praise of Saudi economic reforms suggests that the Beijing-Riyadh partnership has solid foundations, growing considerations in the United States about the implications of Chinese investments for the Washington-Riyadh alliance and uncertainties surrounding the nature of the Saudi privatization procedure may simply restrict the scope of economic cooperation between Saudi Arabia and China. These points may lead Beijing to turn more firmly toward Riyadh’s regional rivals, Iran and Qatar.
Saudi Arabia between China and the United States
Although Washington did not react forcefully to China’s emergence as Saudi Arabia’s largest trading partner in 2010, many U. S. policymakers fear that China could turn Saudi Arabia into an unwitting pawn in its efforts to erode U. S. hegemony over global money markets. Considerations have risen sharply since Saudi Deputy Minister of Economy and Planning Mohammed al-Tuwaijri announced on Aug. 24 that Saudi Arabia plans to partially cover its budget deficit in Chinese yuan to decrease its currency dependence on the U. S. dollar.
Many U. S. economists have worried about Saudi Arabia’s willingness to borrow in Chinese yuan, as Riyadh’s move could prompt other oil-exporting countries to abandon the U. S. dollar in favor of the petroyuan. The dollar as a currency for issuing credits through oil-producing countries would particularly weaken the long-term viability of the U. S. dollar as the world’s reserve currency.
While the United States views its alliance with Saudi Arabia as the cornerstone of its Middle East strategy, Washington will most likely react strongly if Riyadh uses its influence within OPEC to sell off the Chinese yuan. geopolitical goals in the Middle East and countering Iran, intense US tension would likely cause Riyadh to distance itself from Beijing, restricting economic integration between the two countries.
In addition to setting informal limits on the scope and nature of Saudi Arabia’s economic partnership with China, Riyadh’s dependence on U.S. military equipment restricts its ability to purchase large quantities of Chinese arms. Historically, Saudi Arabia has only purchased arms from China to pressure the United States into selling Riyadh highly sophisticated weaponry. Saudi Arabia’s purchases of DF-3 missiles from China in 1987, and current procurements of Chinese stealth weaponry for military use in Yemen, exemplify its tactical approach to arms deals with Beijing.
As U.S.-Saudi Arabia relations have improved considerably under Donald Trump, the need for Saudi Arabia to purchase arms from China will likely decrease in the years to come. As Qatar has been able to covertly purchase Chinese SY-400 missiles with little U.S. scrutiny, and China has a long-standing defense partnership with Iran, the Chinese government is likely to forge stronger defense links with Saudi Arabia’s chief rivals, straining the Beijing-Riyadh partnership.
Although Saudi Arabia has been able to cooperate with China in the nuclear energy arena without U. S. criticism, the Trump administration’s portrayal of China as an adversary in its 2018 National Security Strategy will increase the U. S. government’s scrutiny of nuclear cooperation agreements signed between Beijing and China. and the United States. -Allied countries. While U. S. Energy Secretary Rick Perry has been conducting negotiations with Saudi Arabia over a nuclear deal, a tough stance on Washington’s policy toward China could turn those talks into a nuclear deal. Ratification of Perry’s proposed deal would particularly increase U. S. leverage over Riyadh’s nuclear program. and diluting the effect of China’s commitment to invest $2. 43 billion in nuclear production equipment.
Uncertainties over privatization and the partnership between China and Saudi Arabia
Although U. S. opposition is the biggest immediate impediment to economic cooperation between Saudi Arabia and China, a change in economic situations that have allowed Chinese investment to grow in Saudi Arabia could also weaken the partnership. In recent years, Chinese investors have made inroads into Saudi Arabia due to their willingness to cooperate directly with Saudi state-owned enterprises and supply capital for potentially risky economic diversification projects.
Even if those benefits remain intact, the nature of Saudi Arabia’s privatization strategy and the good fortune of Riyadh’s “Look East” strategy may eventually erode China’s privileged position. While China is most likely to profit from Aramco’s upcoming IPO deal, large privatizations abroad, the energy sector could weaken Beijing’s competitive position vis-à-vis the United States. The speed of Mohammed bin Salman’s proposed privatization plan could also have a major impact on the fortunes of Chinese investments.
Even though the trajectory of Saudi Arabia’s privatization reforms will impact many economic sectors, investment patterns in Saudi Arabia’s growing technology markets will be especially impacted by policy changes. If Mohammed bin Salman exercises restraint and embraces a cautious privatization plan, China’s business interests will be given a critical boost. Chinese technology companies like Alibaba and Tencent are conglomerates that can more effectively withstand state interference than their American counterparts, and will be able to leverage this advantage to entrench their dominance over time.
However, if Saudi Arabia privatizes and diversifies immediately, U. S. tech corporations could take the lead. Twitter’s good fortune in Saudi Arabia highlights the strength of the logo of U. S. tech corporations, and a swift elimination of government interference in the IT sector would allow Facebook and Google to leverage that marketing force by creating a game box with more points for investment. Mohammed bin Salman’s willingness to implement impulsive reforms in the economic and political spheres makes this situation of immediate privatization credible and underscores the fragility of China’s influence in Saudi Arabia’s place. -Petroleum Economy.
Compounding China’s vulnerabilities in an immediate privatization scenario, Saudi policymakers see China as one of many potential investors in the Asia-Pacific region and will work to prevent Beijing from gaining excessively large stakes in nascent industries that are emerging in Saudi Arabia’s non-oil sectors. . . . The Saudi monarchy’s cautious attitude toward Chinese investments can be explained by Riyadh’s concern that China will try to turn its economic influence in Saudi Arabia into political influence, as it has done in countries such as Pakistan and the Philippines.
Saudi Arabia’s efforts in recent months for its economic partnerships with Russia, Japan and India highlight its preference to avoid reliance on Chinese capital. If Riyadh’s industrial diversification strategy prevents Saudi Arabia from granting China preferential access to its client markets, Beijing will possibly in the future eventually divert more resources to other Middle Eastern states, such as Turkey and Iran, to maximize the return on its capital investments.
Although China-Saudi relations are expected to continue in the near future, the strength of the U. S. -Saudi alliance, occasional obstacles to large-scale security cooperation between China and Saudi Arabia, and the impulsive rule of Mohammed bin Salman may simply limit China-Saudi relations. Unless those underlying points are dramatically replaced, Saudi Arabia’s importance as China’s trading partner may simply diminish, particularly as China shifts some of its investment to other emerging markets in the Middle East in the coming years.
Samuel Ramani is a DPhil candidate in International Relations at St. Antony’s College, University of Oxford. He is also a journalist who contributes regularly to the Washington Post and The National Interest. He can be followed on Twitter at samramani2 and on Facebook at Samuel Ramani.
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On Jan. 18, China’s Ambassador to Saudi Arabia Li Huaxin praised Saudi Arabia’s Vision 2030 allocation and called for closer integration between Saudi Arabia’s economic diversification efforts and the Belt and Road Initiative (BRI). Li also expressed enthusiastic support for Saudi Crown Prince Mohammed bin Salman’s initiative. anti-corruption campaign, saying its efforts for the rule of law in Saudi Arabia would increase the country’s attractiveness as an investment destination for Chinese companies.
Although Li’s praise of Saudi economic reforms suggests that the Beijing-Riyadh partnership has solid foundations, growing considerations in the United States about the implications of Chinese investments for the Washington-Riyadh alliance and uncertainties surrounding the nature of the Saudi privatization procedure may simply restrict the scope of economic cooperation between Saudi Arabia and China. These points may lead Beijing to turn more firmly toward Riyadh’s regional rivals, Iran and Qatar.
Saudi Arabia’s Balancing Act Between China and the United States
Although Washington did not react forcefully to China’s emergence as Saudi Arabia’s largest trading partner in 2010, many U. S. policymakers fear that China could turn Saudi Arabia into an unwitting pawn in its efforts to erode U. S. hegemony over global money markets. Considerations have risen sharply since Saudi Deputy Minister of Economy and Planning Mohammed al-Tuwaijri announced on Aug. 24 that Saudi Arabia plans to partially cover its budget deficit in Chinese yuan to decrease its currency dependence on the U. S. dollar.
Many U. S. economists have worried about Saudi Arabia’s willingness to borrow in Chinese yuan, as Riyadh’s move could prompt other oil-exporting countries to abandon the U. S. dollar in favor of the petroyuan. The dollar as a currency for issuing credits through oil-producing countries would particularly weaken the long-term viability of the U. S. dollar as the world’s reserve currency.
While the U. S. views its alliance with Saudi Arabia as the cornerstone of its Middle East strategy, Washington will most likely react strongly if Riyadh uses its influence within OPEC to sell the Chinese yuan. With the aim of geopolitical goals in the Middle East and countering Iran, the intense US tension would likely cause Riyadh to distance itself from Beijing, restricting economic integration between the two countries.
In addition to setting casual limits on the scope and nature of the economic partnership between Saudi Arabia and China, Riyadh’s reliance on the U. S. military apparatus restricts its ability to acquire gigantic quantities of Chinese weapons. Historically, Saudi Arabia has acquired weapons from China to force the U. S. to sell highly complicated weapons to Riyadh. Saudi Arabia’s acquisitions of DF-3 missiles from China in 1987 and existing acquisitions of Chinese stealth weapons for military use in Yemen exemplify its tactical technique in arms deals with Beijing.
While relations between the United States and Saudi Arabia have especially improved under Donald Trump, Saudi Arabia’s desire to buy weapons from China will likely decline in the coming years. Given that Qatar has been able to secretly acquire Chinese SY-400 missiles with Although the United States is small and China has a long-standing defense partnership with Iran, the Chinese government will most likely forge more potent defense ties with major rivals. from Saudi Arabia, which will strain Beijing’s relations.
Even though Saudi Arabia has historically been able to cooperate with China in the nuclear energy sphere without U.S. criticism, the Trump administration’s depiction of China as an adversary in its 2018 National Security Strategy will increase U.S. government scrutiny over nuclear cooperation deals signed between Beijing and U.S.-allied countries. As U.S. Secretary of Energy Rick Perry has held negotiations with Saudi Arabia on a nuclear agreement, a hawkish tilt in Washington’s China policy could convert these discussions into a nuclear deal. The ratification of Perry’s proposed agreement would greatly expand the United States’ leverage over Riyadh’s nuclear policy and dilute the impact of China’s $2.43 billion nuclear manufacturing equipment investment pledge.
Uncertainties over privatization and the partnership between China and Saudi Arabia
Although U. S. opposition is the biggest immediate impediment to economic cooperation between Saudi Arabia and China, a change in economic situations that have allowed Chinese investment to grow in Saudi Arabia could also weaken the partnership. In recent years, Chinese investors have made inroads into Saudi Arabia due to their willingness to cooperate directly with Saudi state-owned enterprises and supply capital for potentially risky economic diversification projects.
Even if those benefits remain intact, the nature of Saudi Arabia’s privatization strategy and the good fortune of Riyadh’s “Look East” strategy may eventually erode China’s privileged position. While China is most likely to profit from Aramco’s upcoming IPO deal, large privatizations abroad, the energy sector could weaken Beijing’s competitive position vis-à-vis the United States. The speed of Mohammed bin Salman’s proposed privatization plan could also have a major impact on the fortunes of Chinese investments.
Even though the trajectory of Saudi Arabia’s privatization reforms will impact many economic sectors, investment patterns in Saudi Arabia’s growing technology markets will be especially impacted by policy changes. If Mohammed bin Salman exercises restraint and embraces a cautious privatization plan, China’s business interests will be given a critical boost. Chinese technology companies like Alibaba and Tencent are conglomerates that can more effectively withstand state interference than their American counterparts, and will be able to leverage this advantage to entrench their dominance over time.
If Saudi Arabia undergoes rapid privatization and economic diversification, however, U.S. technology companies could gain the upper hand. The success of Twitter in Saudi Arabia highlights the brand power of U.S. technology companies, and a rapid withdrawal of government interference in the IT sector would allow Facebook and Google to leverage this marketing strength by creating a more level playing field for investment. Mohammed bin Salman’s willingness to enact impulsive reforms in the economic and political spheres makes this rapid privatization scenario a plausible one, and underscores the fragility of China’s influence over Saudi Arabia’s post-oil economy.
To compound China’s vulnerabilities in a rapid privatization scenario, Saudi policymakers view China as one of many potential investors in the Asia-Pacific region, and will work to prevent Beijing from gaining excessively large ownership stakes in infant industries developing within Saudi Arabia’s non-oil sectors. The Saudi monarchy’s circumspect attitude toward Chinese investment can be explained by Riyadh’s concerns that China will attempt to eventually convert its economic influence in Saudi Arabia into political influence, like it has in countries like Pakistan and the Philippines.
Saudi Arabia’s efforts in recent months for its economic partnerships with Russia, Japan and India highlight its preference to avoid reliance on Chinese capital. If Riyadh’s industrial diversification strategy prevents Saudi Arabia from granting China preferential access to its client markets, Beijing will possibly in the future eventually divert more resources to other Middle Eastern states, such as Turkey and Iran, to maximize the return on its capital investments.
Although China-Saudi relations are expected to continue in the near future, the strength of the US-Saudi alliance, occasional obstacles to large-scale security cooperation between China and Saudi Arabia, and the impulsive government of Mohammed bin Salman Taste may simply limit relations between China and Saudi Arabia. Unless those underlying points are dramatically replaced, Saudi Arabia’s importance as China’s trading partner may simply decline, particularly as China shifts some of its investment to other emerging markets in the Middle East in the coming years.
Samuel Ramani is a PhD candidate in International Relations at St. John’s University. Antony’s College, University of Oxford. Es journalist and regular contributor to The Washington Post and National Interest. He can be followed on Twitter at samramani2 and on Facebook at Samuel Ramani. .
On January 18, Chinese Ambassador to Saudi Arabia Li Huaxin praised Saudi Arabia’s Vision 2030 project and called for tighter integration between Saudi Arabia’s economic diversification efforts and the Belt and Road Initiative (BRI). Li also expressed enthusiastic support for Saudi Crown Prince Mohammed bin Salman’s anti-corruption campaign, claiming that his efforts to strengthen the rule of law in Saudi Arabia would increase the country’s attractiveness as an investment destination for Chinese businesses.
Although Li’s praise of Saudi economic reforms suggests that the Beijing-Riyadh partnership is on firm ground, growing considerations in the United States about the implications of Chinese investments for the Washington-Riyadh alliance and uncertainties surrounding the nature of the Saudi privatization procedure may simply restrict the scope of China-Saudi economic cooperation. These points may lead Beijing to turn more firmly toward Riyadh’s regional rivals, Iran and Qatar.