Saudi Arabia and China to facilitate use of renminbi in oil trade as part
of growing relations
The deepening ties between Saudi Arabia and China are set to facilitate the
use of the renminbi (RMB) in oil trade between the two nations, according to a
recent report by S&P Global. As Saudi Arabia's Vision 2030 progresses, the
Kingdom sees increased opportunities for collaboration with Beijing, including
the potential for conducting oil transactions in the Chinese currency.
The prospect of China paying for Saudi oil in renminbi has fueled
expectations that the two countries could shift their oil trade to the Chinese
currency. However, S&P Global's report highlights the challenges involved
in this transition, noting that the renminbi is not widely used in
international trade and finance, which could limit the avenues for spending
these proceeds. As a result, China's accumulation of local currency inflows
could incur significant costs and raise currency risks. Currently, the use of
the renminbi in Saudi-China trade remains limited to the oil sector, despite
Saudi Arabia’s interest in expanding its use.
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China’s Expanding Trade in the Middle East
Over the past 20 years, China’s trade with the Middle East has more than
tripled, significantly boosting the potential for broader adoption of the
renminbi by Gulf states. Saudi Arabia, in particular, has become China’s
largest trading partner in the Gulf, with oil comprising 84 percent of China’s
imports from the Kingdom in 2023. Saudi Arabia’s trade surplus with China has
also grown substantially, doubling from $20 billion to $40 billion in the past
three years, compared to $5 billion to $10 billion in 2015-2016.
Vision 2030: Strengthening Ties with China
The transformation of Saudi-China relations gained momentum following
President Xi Jinping’s visit to Saudi Arabia in December 2020. This visit
marked a shift from a relationship primarily focused on oil to one that
encompasses a wide range of sectors. As Saudi Arabia's Vision 2030 unfolds, the
Kingdom is increasingly looking to strengthen institutional, financial, and
cultural ties with China.
"Beyond the thriving oil trade that anchors their core relationship,
long-term initiatives like Saudi Arabia’s Vision 2030 are fostering new
linkages between the two countries," said Charles Chang, Greater China
Country Lead for Corporates at S&P Global Ratings.
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These strengthened ties could provide Saudi Arabia with more opportunities
to use the renminbi, such as paying for Chinese engineering and construction
services or investing in Chinese companies across various sectors. Chinese
firms, known for their expertise in executing large-scale projects, are
well-positioned to meet Saudi Arabia's ambitious development goals.
Additionally, collaboration between Saudi Arabia and Chinese financial markets,
including those in Hong Kong and mainland China, could aid in the Kingdom's
goal to elevate its stock exchange to a global ranking through shared
technology, expertise, and reforms.
Renminbi’s Role in Global Trade
Since its introduction in 2009, the renminbi has gained ground as a currency
for international trade. China's central bank has promoted the renminbi through
two main channels: expanding trade and establishing bilateral clearing and
settlement systems for local currency transactions, and developing offshore
renminbi markets to enable global access to Chinese financial markets. Over the
past two decades, China’s share of global trade has tripled from 4 percent in
2002 to 13 percent in 2023.
Despite these advancements, the renminbi's entry into global oil markets may
rely on strategic, rather than purely economic, factors. Geopolitical shifts,
changing national interests, and the rise of non-U.S. trade, particularly in
Asia, have prompted some emerging economies to diversify their international
relationships.
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Long-Term Alignment Between Saudi Arabia and China
As Saudi Arabia pursues its Vision 2030 projects and continues its oil
trade, the Kingdom may increase its collaboration with Chinese partners,
especially for major upcoming events like the Asian Winter Games 2029, Expo
2030, and the FIFA World Cup 2034. China's proven track record in large-scale
projects, such as the construction of the Lusail Stadium for the 2022 World Cup
in Qatar, has already led to its selection for major projects in Saudi Arabia,
including the Jeddah Stadium and surrounding sports villages.
For China, the adoption of renminbi-based oil trade could also advance its
digital currency initiatives. This was exemplified by the first purchase of
crude oil in digital yuan in October 2023 and Saudi Arabia's participation in
mBridge, a central bank digital currency trial for trade settlements led by
China and the Bank of International Settlements, in June 2024.
Source:
https://economymiddleeast.com/
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