SPASAUDI ARABIA and China plan to establish and operate jointly a $20 billion investment fund, sharing costs and profits on a 50:50 basis, Energy Minister Khalid Al-Falih said on Thursday.
Al-Falih was speaking on the sidelines of an economic conference of senior officials and businessmen from the two countries. It was attended by Chinese Vice Premier Zhang Gaoli.
Al-Falih said a company will be established between the Royal Commission for Jubail and Yanbu, Aramco and a Chinese company in order to attract Chinese industrial investments. This, he said, is in favor of both the Saudi Vision 2030 and the Chinese Belt and Road Initiative.
China has announced plans to establish such joint investment funds around the world in recent years as a way to cement bilateral economic ties. In December 2015, Beijing said it would establish a $10 billion fund with the United Arab Emirates, and last October a plan for a fund with France was revealed.
Meanwhile, Saudi Arabia is willing to consider funding itself partly in Chinese yuan, a senior official has said, raising the possibility of closer financial ties between the two countries.
The Saudi government has started borrowing tens of billions of dollars abroad in the past year to cover a big budget deficit caused by low oil prices, but its foreign bond issues and loans have been denominated entirely in US currency.
Obtaining some funds in yuan could give Riyadh more financial flexibility and would mark a success for China, the biggest market for Saudi oil, in its drive to make the yuan a top international currency.
“One of our main objectives is to diversify the funding basis of Saudi Arabia,” Deputy Minister of Economy and Planning Mohammed Al-Tuwaijri told the Saudi-Chinese conference in Jeddah.
“We will do that through access to investors or bodies of liquidity in the markets. China is by far one of the top markets. We will also access other technical markets in terms of unique funding opportunities, private placements, panda bonds and others.”
Tuwaijri added: “We will be very willing to consider funding in renminbi and other Chinese products, The Industrial and Commercial Bank of China and other divisions have shown interest for us to do that.”
Panda bonds are yuan-denominated bonds from non-Chinese issuers which are sold within China. An Liyan, chief executive of ICBC International, an arm of ICBC, the biggest Chinese bank, told the conference that her bank was willing to sponsor Saudi issues of panda bonds.
Al-Tuwaijri said Riyadh was interested in raising money abroad not just to cover its budget deficit but also, more importantly, to finance major investment projects that would expand its economy and create jobs.
“Ideally, we would be funding through project finance and bond markets and other means,” he said.
The Jeddah conference followed a visit to China by Custodian of the Two Holy Mosques King Salman in March during which as much as $65 billion of business deals were signed in sectors including oil refining, petrochemicals, light manufacturing and electronics.
Saudi Arabia is keen to attract Chinese investment in new industries, such as manufacturing and tourism, that it hopes to develop as part of efforts to diversify its economy beyond oil exports.
But Riyadh is also eager to boost the profits of its main sovereign wealth fund, the Public Investment Fund, (PIF) which is believed to have around $180 billion of assets. The PIF is looking at investment opportunities in China’s shipping and transport systems and other infrastructure, Al-Tuwaijri said.
The trade exchange between Saudi Arabia and China was estimated at SR185 billion in 2015. China also ranks the first on the list of the top countries exporting to the Kingdom. About 14% of all imported products in the Kingdom are from China.