As the intricate and delicate rhythms of the global economy pulse, a significant shift in focus emerges from the Middle East - one that is increasingly directed towards ChinaOn April 22, 2023, Saudi Aramco, the world's largest oil producer, made waves with its announcement to invest over 10 billion Chinese yuan in the Chinese enterprise Hengli PetrochemicalThis move is yet another chapter in a narrative that has seen Saudi Aramco funnel more than 200 billion yuan into China over the past year.

Why is the Middle East Increasingly Turning to China?

Saudi Aramco, fully known as the Saudi Arabian Oil Company, traces its roots back to 1933 and the oil company American OilThis American entity was initially governed by four oil giants before the Saudi government gradually began to acquire shares, culminating in a complete nationalization by 1988, transforming it into the state-owned oil company of Saudi Arabia

With the wealth of oil that the kingdom possesses, Saudi Aramco blossomed into the largest oil production company worldwide, exemplifying the quintessential Middle Eastern 'tycoon'.

Current statistics highlight that Saudi Aramco has proven oil reserves totaling an astonishing 261.5 billion barrels - a figure that dwarfs the summed proven reserves of the world's five largest oil companies by five-foldIn 2023 alone, Saudi Aramco's oil output reached 10.7 million barrels per day, representing a staggering 10% of global oil production that hovers around 100 million barrels dailyFurthermore, the quality of Saudi Aramco's crude oil is exceptional, and the extraction costs are remarkably low; in fact, the average upstream operating expense was only $3 per barrel in 2021, compared to China's $12.3 and CNOOC's $7.83. With such high production rates and low costs, Saudi Aramco operates as a veritable cash-printing machine.

Financially, the numbers tell a compelling story

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In 2023, Saudi Aramco reported total revenues of $440.88 billion, with a net profit hitting $121.3 billion, averaging around $2.4 billion a dayAlthough impacted by declining oil prices and sales volumes, 2023 was not its most lucrative year, with 2022 seeing profits reach $161.1 billion, a figure nearly equivalent to eight times that of China National Petroleum CorporationAs a state-owned enterprise, Saudi Aramco is mandated to transfer between 50% to 60% of its revenue back to the Saudi government in the form of royalties, corporate income taxes, and cash dividends, yet it still boasts a remarkable free cash flow of $101.2 billion.

With such substantial wealth at its disposal, Saudi Aramco faces the imperative task of identifying appropriate avenues for investment.

Why China?

Foremost among the reasons for Saudi Aramco's focus on China is the latter's status as the second-largest economy in the world, characterized by a vast and rapidly growing market that has captured the attention of global enterprises, including Saudi Aramco

Furthermore, China's appetite for energy continues to swell, positioning it as a potentially critical market for one of the world's primary oil producers.

Recent customs data reveals that in 2023, China's crude oil imports reached a staggering 563.99 million tons, marking an 11% increase from the previous year and retaining its title as the world's largest importerDespite China's ambitious goals for carbon neutrality, the reliance on oil is poised to persist for an extended period, with petroleum not only fueling vehicles but also serving as a vital ingredient for everyday products like clothing, tires, cleaning agents, and fertilizersTherefore, as the world's manufacturing powerhouse, China remains intertwined with oil consumption.

Moreover, the Chinese government is steadfastly working to upgrade its energy structure, promoting clean and renewable energy developmentsFor traditional energy companies like Saudi Aramco, this represents a significant opportunity

Additionally, China's Belt and Road Initiative presents further investment avenues for Saudi Aramco.

This collaboration is not a first for Saudi Aramco; since March of last year, it has executed six investments in China, with estimates suggesting a total investment exceeding 200 billion yuan.

A Win-Win Cooperation

Oil serves as the backbone of Saudi Arabia's economy, contributing nearly 70% of its fiscal revenueHowever, this heavy dependence has resulted in an overreliance on oil, leading to a monolithic industrial structureThe gravity of petroleum income highlights the need for economic diversification, which Saudi Arabia recognized in 2016 when it unveiled its Vision 2030 plan aimed at reducing oil dependency and fostering comprehensive modernization across economic, social, and cultural spectrums.

As a cornerstone of the economy, Saudi Aramco itself must explore various business avenues, particularly focusing on developing 'non-oil' sectors

The investment strategy for the upcoming three years indicates that 60% will be channeled into upstream investments, including natural gas; 30% will head towards downstream, and 10% will target renewable energyStrategic expansion into the Chinese market thus stands out as one of Aramco’s crucial transformation measures.

Besides pumping capital into China's energy and chemical enterprises, Saudi Aramco is also exploring renewable energy and new materialsThe robust industrial foundation and vast market that China offers present enormous opportunities for transformation.

From China's perspective, Saudi Aramco's increasing investment in the Chinese market enhances not only capital influx but also bolsters the security of China's oil supply chain.

Simultaneously, as Saudi Aramco invests in China, China has ramped up its investments in Saudi ArabiaIn 2022, China's investments in Saudi Arabia stood at merely $1.5 billion, which soared to $16.8 billion by 2023. China has cemented its position as Saudi Arabia's largest trade partner and one of its most active investors.

Currently, over 160 large Chinese enterprises have established operations in Saudi Arabia, engaging in various sectors, including housing construction, port services, photovoltaics, and automobile manufacturing

In the construction realm, firms like China State Construction and China Railway Construction have contributed to the expansive New Future City project, encompassing a vast area of 26,500 square kilometersAdditionally, in terms of engineering machinery, products from Zoomlion have captured the highest market share in Saudi ArabiaIn the photovoltaics sector, Chinese companies like LONGi Green Energy and JinkoSolar have experienced significant success in the Saudi marketMeanwhile, BYD stands out as one of the largest electric bus suppliers in Saudi Arabia.

A Complementary Partnership

The synergy between China as an industrial manufacturing titan and Saudi Arabia as a leading oil producer offers a promising landscape for future collaborationAs globalization continues to redefine economic dynamics and reshape geopolitical forces, the relationship between the Middle East and China burgeons with potential