The Saudi Stop in China’s Marine Silk Road: China’s Growing Economic Ties in KSA
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The Saudi Stop in China’s Marine Silk Road: China’s Growing Economic Ties in KSA
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By Saniya Syeda, Senior Analyst at Botho Emerging Markets Group
July 26, 2023
Over the years, China's Belt and Road Initiative (BRI) has experienced mixed international success in establishing an infrastructure network that connects China to its key trading partners. By utilizing the Maritime Silk Road (MSR) within the BRI framework, China has formed connections across the Global South, particularly in Central Asia and Africa. However, the realization of a Silk Road from China to Africa needs to consider the Middle East. A critical lynchpin, the Middle East has historically been a region where the Global West has exerted significant influence. Nevertheless, with recent geopolitical shifts and the decoupling of power centres, this geopolitical dynamic is also undergoing changes. China is strengthening its economic ties with the Kingdom of Saudi Arabia (KSA) to support the expansion of its Belt and Road Initiative towards the West. Saudi Arabia is emerging as a crucial node in China's geostrategic expansion.
The significance of the Red Sea Corridor makes KSA a vital chokepoint for MSR
From the Suez Canal to the straits of the Bab al Mandab, the Red Sea is a vital artery for the world economy. Upwards of $700 billion of global seaborne cargo sails through its waters every year. Owing to this, global powers like the US have tried establishing a foothold on the Red Sea coast. China too has held Red Sea ambitions. For China, the Red Sea’s hydrocarbon prowess has been critical to the Chinese economy as the country relies heavily on the region for sourcing its oil. Prior to 2011, when South Sudan became independent and took with it three-quarters of Sudan’s oil fields, Sudan accounted for about 5% of China’s imported oil. Since the civil strife, oil dependence has shifted further in favor of Saudi Arabia, with KSA today supplying 17% of China’s imported oil, the becoming its single most important supplier in the world.
Furthermore, Saudi Arabia is critical to China’s African trade endeavours. In 2022, Chinese trade with Africa touched $282 billion and a significant portion of this trade is routed through the Red Sea, especially in the Horn and Eastern Africa, which receive significant foreign direct investment (FDI) from China. For instance, 3 of the the top 5 recipient of Chinese FDI flows (2003-2023) in the continent have relied on Eastern ports in Mombasa and Dar es Salam. A significant degree of these investments have been towards port development and maritime storage investments, as part of the Maritime Silk Road ambitions dotting the Red Sea. However, it is Saudi Arabia that accounts for the largest coastline along the Red Sea, spanning almost 1,800 km. Owing to this geographic advantage combined with a stable political and economic environment, KSA offers China a critical ally to buoy its MSR ambitions. These ambitions have been one of the driving forces behind China’s growing investments in the KSA.
China’s Growing Investments in the Kingdom of Saudi Arabia
China's FDI in Saudi Arabia has seen significant growth since the launch of the BRI in 2013. FDI flows reached a record high of $654 million in 2019. Additionally, trade between the two countries has also flourished, with China's industrial exports to Saudi Arabia increasing by 50% since 2013, and Saudi Arabia's crude oil exports to China growing from 364 to 638 million barrels in 2021. Chinese-Saudi cooperation now extends to new sectors like renewable energy, construction and digital innovation. China has also been strengthening its presence in Saudi’s port sector, which is vital to bolstering its MSR initiative, and also lies at the intersection of both China’s BRI and KSA’s Vision 2030.
In 2021, China’s COSCO Shipping Ports (CSPL) entered into an agreement with the founding shareholders of Saudi Arabia’s Red Sea Gateway Terminal Limited (RSGT) to acquire a 20% stake in the terminal which is located at Jeddah Islamic Port. For many years, Saudi Arabia’s Red Sea ports, particularly in Jeddah, have been a gateway to East and Horn African exports. Besides establishing a foothold in historic marine gateways in the Gulf towards Africa, China is also deepening its investments in emerging Saudi destinations as part of the Saudi Silk Road.
Saudi Silk Road Industrial Services is a joint venture between KSA and China, in which the Chinese hold 60% equity. As part of the Saudi Silk Road project, the Chinese government has identified Jazan, Yanbu and Jubail as part of its investment foci. While Jazan and Yanbu are port cities in the Red Sea, Jubail is a critical industrial port city on Saudi’s eastern coast. As part of this initiative, China is set to invest in the construction of industrial cities, marine ports and storage facilities as well as downstream energy industries. Over the years, China has also been involved in the development of Saudi Arabia’s long-held ambition of constructing a railway line that connects its eastern and western ports. These developments are vital to China’s MSR and BRI, as they offer a strategic road connecting the China-led Chabahar port in Iran with Saudi’s Eastern and then Western ports, eventually connecting to Africa from the East.
Amidst a complex interplay of factors, Saudi Arabia and China have forged robust ties. Seeking to expand its geopolitical horizons beyond conventional allies, Saudi Arabia too, has actively pursued closer relations with China. A key aspect of this partnership involves enticing Chinese foreign direct investment (FDI) to fuel the ambitious Vision 2030 development agenda and bolster both domestic and international connectivity. Leveraging its strategic location along China's Marine Silk Road allows Saudi Arabia to turn these aspirations into reality enabling a cooperation that propel’s both China and KSA’s geopolitical surge.
Saniya Syeda is a Senior Analyst at Botho Emerging Markets Group.