China: A Strategic Partner of Saudi Arabia
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Relations between Saudi Arabia and China are mutually strategic in nature. China is the second largest economy in the world. Saudi Arabia is the largest economy in the Middle East and North Africa region and plays a unique systemic role in the global energy market. Saudi Arabia today possesses 70% of the world's extra capacity in oil. Both countries are members of the G-20. As China's demand for oil increases so will Saudi Arabia's importance in providing sustainable and secure amounts of the black gold. Security of supply for China is equal to security of demand for Saudi Arabia.
As China's role in the global economic landscape increases, trade being an essential part of that role, assures a sustainable foothold in Saudi Arabia. The relationship until now has been marked by the roles the two countries attained respectively in the world. However, the relationship is not merely based on global trade patterns.
A policy that embraces "China", looking "East" is part and parcel of King Abdullah's vision. In many ways, the basis of the relationship is founded on the vision that China will increasingly play a fundamental role in the global economy and in its own way Saudi Arabia is an essential systemic partner.
In many ways, links between the two have grown so dramatically because of each country's strengths. China is an exporter of goods and Saudi Arabia is a significant importer, while China's growth and acute demand for oil imports has been largely supplied by Saudi Arabia. China is second largest source of imports to the Kingdom and is ranked fifth as a destination for Saudi exports. Indeed, Saudi Arabia is China's biggest trading partner in the West Asia and North Africa region.
The rise in Saudi Arabia's oil exports was spurred by the growing energy demand in China that outstripped domestic supply. Between 2000 and 2005 China's oil consumption increased from 4.7 million barrels per day to almost 7 million barrels, 43 percent of which was derived from imports. China today is importing massive quantities of oil and, following the modification and augmentation of its refining capacity, is able to absorb increasing amounts of Saudi (heavy) oil. This has placed Saudi Arabia into the position of China's leading foreign source of oil, while at the same time making China the Kingdom's leading crude oil customer.
Important contributions to the development of the Saudi economy have been made by Chinese companies over the past few years. Chinese firms have begun to invest in infrastructure and industry in Saudi Arabia, including in an aluminium smelter in the southern province of Jizan, at a cost of $3 billion. Likewise, important investments over the recent past have been made by Saudi companies. Saudi Aramco, owns a refinery in Qingdao province and has another, in Fujian, as a joint venture with Sinopec, a Chinese petroleum giant, and ExxonMobil. Saudi Arabia is pursuing its own industrial drive based on value added manufacturing, based on a knowledge based economy and knowhow. China would be an essential partner in enhancing Saudi Arabia's National Industrial Strategy in the years to come. Doubling industrial contribution to 20% of GDP by 2020 is Saudi Arabia's goal.
Today, more than 800 Saudis are attending Chinese universities, more than the total studying in France. Few would know that Saudi Aramco has been sending students to study in China since 1986. Saudi Arabia's future is based on diversification through education and innovation, something China and its policy makers know all too well. Both countries have much to gain as the relationship evolves and attains greater mutual depth.
Dr. John Sfakianakis is based in Riyadh and is Group General Manager and Chief Economist at Banque Saudi Fransi.
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