As part of the recent visit by Saudi Arabia’s Crown Prince Salman to China, I participated the Saudi-China Investment Forum organized by the Saudi Arabian General Investment Authority (SAGIA). I was honored to receive an invitation to speak, and compared with forums organized inside and out of the Kingdom of Saudi Arabia in 2014, this was one of the best organized and most interesting.
The forum highlighted the importance of the Crown Prince’s visit and relations between Saudi Arabia and China and Asia as a whole. Just a few weeks ago, Crown Prince Salman visited Japan, India, Pakistan, and the Maldives. The first message of these visits is that Asia as a whole is important for the Kingdom, but that China is particularly important. The Kingdom of Saudi Arabia exports the mostly oil and petrochemicals to Asia – and North America is in second place.
If we look at any expectations, we find that Asia in general and China in particular, and not Europe and the United States, represent the future growth of the market for oil and its derivatives.
Once you step outside in Beijing, one is struck by the city’s dynamism. If you think there are too many cars in Riyadh, you should see Beijing – the traffic congestion is choking during rush hour. Pollution of course has become a serious problem in China, to the extent that Panasonic just announced that it would pay additional compensation to work there because of it.
Everyone in the Chinese middle class wants to own a car. A customer gets a new car every two seconds in China, contributing to a surge of domestic consumption of automobiles which will top 21 million new cars and trucks in 2014, compared to just one million in Saudi Arabia. At this rate, China will have more cars than the United States by 2020. By 2020, China will have 260 million cars on the road, and only 5 million will be hybrid or battery powered. That’s 255 million cars that will require traditional fuel – gasoline. Many of China’s taxis, trucks and buses will run on compressed natural gas.
Saudi Arabia today sells a million barrels of oil per day to China compared to almost zero in the early 90s. China is the second highest source of Saudi imports after the United Kingdom. In 2012, the total value of Chinese exports to the Kingdom of Saudi Arabia was SAR 74 billion ($20 billion); equivalent to 12.7% of the Kingdom’s total imports, while the ratio was only 5.3% in 2002. In contrast, the United States exported to the kingdom worth 79 billion Saudi riyals ($21 billion) in 2012.
Saudi Arabia should not get complacent in diversifying its economy away from oil just because Chinese demand for Saudi Arabia’s number one export is soaring. The industry is fast changing, and the entry of revolutionary technology is likely in the next two decades. Saudi Arabia should boost other areas of trade and technology transfer with China – and when choosing international partners should ask themselves the following question: Where does Saudi Arabia get the greatest transfer of technology with cooperation in the areas of research, development and marketing at the lowest possible cost? This is the model adopted by Taiwan in the seventies when it tried to start manufacturing in the country, but also has attracted global technology companies that have transferred technology and knowhow over several years. The Saudi-China relationship is a strategic relationship that is set to grow.
