Trade Compliance Edition: Belt and Road Initiative (BRI) from Saudi Arabia's view

Belt and Road Initiative and Saudi Vision 2030 are interconnected in multiple ways especially with the recent pledges by both countries to be carbon neutral by 2060. The vastness of the Initiative itself is something that intrigues us to understand better. China is pulling out the biggest trunk card ever to make sure that its Global trade and finance lending branches are strengthened. Belt and Road Initiative in the span of 2013-2020 has already invested $1.38 trillion to over 2500 projects in 140 countries. The idea behind this piece is to acknowledge the fact that with recent Covid lockdowns, countries are trying to reduce the footprint globally and focus more on neighboring and regional trade, however, with Word's biggest trade deal (Regional Comprehensive Economic Partnership) and BRI, China is already on a move to secure its place both globally and with regional partners on continuous uninterrupted trade. With Increasing Petrochemical capacities and a move towards Self Sufficiency on many commodities, China is making sure its exports are not having any obstacles and most importantly strengthened.

Belt and Road Initiative

The agreement was initiated in the year 2013 by China's President Xi Jinping and until 2016 it was known as "One belt One Road". On March 28, 2015, just three days before my Birthday the official outline for the BRI was issued by the National Development and Reform Commission (NDRC) which aims to promote connectivity between Asian, European, and African Continents and their adjacent seas. By connectivity, what China means here is an all-dimensional, multi-tiered connectivity network that will help realize independent as well as diversified and sustainable development in these countries.

To make it a bit more clear, this Initiative by its nature of building around the historic Silk road puts a major focus on countries in Asia, Eastern Africa, Eastern Europe, and the Middle east. The Belt Road initiative consists of three elements which are:

• The silk road Economic Belt consists of six economic corridors between China and various other countries like Russia, Central Asia, West Asia, India, Bangladesh, Myanmar, Pakistan among others.
• 21st Century Maritime Silk Road which would connect China to SEA, Indonesia, India, Saudi Arabia, Somalia, Europe. To make it simple, using various waters like the Indian Ocean, Gulf of Bengal, Arabian Sea, Persian Gulf, and the Red Sea and the countries which fall in the Belt are connected
• Polar Silk Road is something that China published as a white paper to be included in the BRI to actively participate in the Arctic Affairs.

To understand the vastness of the agreement, the above three have to be looked at not individually but interconnected with each other. A vast and big agreement like this needs some cooperation guidelines among the participating countries which are Policy coordination (Intergovernmental cooperation), Facilities Connectivity(Infrastructure connection plans), Unimpeded Trade (reduction in trade barriers and promoting Investment), Financial Integration(monetary policies and setting up financing institutions and People bonds(academic exchanges, media cooperation, and dialogue).

As of Y2021, 140 Countries have signed an MOU with China to be part of the BRI. In Y2020, there was a decline in Chinese Investments when compared to Y2019 Chinese Investments for the first six months Period. USD 23.4 billion investments in first 6 months of 2020 compared to USD 46 billion in Y2019. Almost 50% decline in Investments which mostly have to do with the Covid-19. In Y2021 (first six months), USD 19.3 Billion was invested , a decline of 29% when compared to the first of half of Y2020 Investments.         

Investments for BRI

Major Investments with regards to BRI come from Chinese SOEs (State Owned Enterprises). An Interesting fact is the very first Non-SOE was Alibaba. The Largest Investor as of Y2021 is China State Construction Engineering followed by the Chinese Railways. As shared above, if you notice there has been a steady decline in the investments since 2018. With Continued Lockdowns, The overseas investments would certainly take time to pick up. The 14th Five year Plan also re-iterated the fact to put a brake on Overseas investments. However, we can certainly foresee that the investments would be on a greater deal towards the Asian Countries specifically in strengthening the logistics as strategically, that would make China's short term investments more reasonable (ports, railways). There are other vehicles in place to move the BRI like the Silk road fund which will certainly add on to the regional state-owned investments.

BRI investments when checked the pattern is not evenly distributed among the regions. As seen from the above chart, most investments were channeled in Asian countries followed by African and Middle Eastern Countries In Africa & Middle East, Egypt and Nigeria are particularly seen a good Investment on behalf of BRI in the first half of 2021.

The focus of BRI investment continues to be in Energy and Transport sector. Particularly in the first half of 2021, the Logistics sector saw a significant doubling of Investments. Energy Investments constitutes the largest share by about USD 6 Billion. Most of the Energy Investments is focused on Gas (37%), followed by Oil(30%) and Hydropower(28%). Pakistan received most of the Energy Investments followed by Russia. UAE is another region that has seen good investments followed by Indonesia in Energy Sector.

Saudi Arabia and BRI

It has been 30 years since China and Saudi Arabia embarked on a diplomatic relation, and the relationship is only going to strengthen with Belt and Road Initiative for both Countries. Saudi Arabia's Vision 2030 and China's BRI share common goals. In February 2019, Saudi Arabia signed over 30 economic cooperation agreements with China worth a total of $28 billion dollars. China is the largest trade partner for Saudi Arabia surpassing the USA, and 2019 saw a record high of trade worth $78 billion between the two countries which is an increase of 23% YoY.

As China's largest trade partner in Western Asia and Africa, Saudi Arabia's exports to China reached $54.26 billion in 2019, 18% higher than the previous year. China's exports to Saudi Arabia hit $23.92 billion, increasing by 36 % YoY. The energy sector continues to be the main sector with China crude oil Imports increasing by 13% in Y2020 which is primarily due to an uptick in demand as China was the first country to recover from Covid in Y2020.

Besides Oil, Renewable Sector is another area in which both countries are focusing on increasing partnership and China's Silk Road fund completed the purchase of 49% in Saudi Arabia's ACWA which?holds 1,668 MW of concentrated solar power, solar photovoltaic, and wind assets in the United Arab Emirates, South Africa, Jordan, Egypt, and Morocco. This is the third partnership between ACWA and Silk Road Fund, where two investments were in UAE, including a clean coal technology in Hassyan Power plant to generate Electricity.

In Infrastructure, China's Leading Investment branch in BRI which is China Railway Construction Cooperation Ltd (CRCC) signed a long-term contract with Aramco and Spark in building its infrastructure and Pipeline. The contract is valued at $262m. Construction contracts between the two countries are rapidly growing with the Chinese total value of completed contracted projects by Chinese enterprises in Saudi Arabia from 2014 to 2019 touching $40 billion. This amount is twice the corresponding value for 2008 to 2013.?

Key areas of Partnerships in Future

With an ongoing focus on more sustainable and environment-friendly investments in the region and globally, BRI will see more strategic investments into renewables and sectors which are more non-oil related.

• Digitalization: Saudi Arabia is seeing a fast-paced development in Digital Industries and Infrastructure. Huawei 5G projects, Artificial Intelligence, and Smart city solutions coupled with Alibaba cloud partnership with STC and Aramco on Cloud services.
• Petrochemical Investments: Sabic and Aramco combined Saudi-invested petrochemical projects in China will reach $35 billion, with a total projected output of 21.7 million tonnes by 2025. Pan Asia PET resin (China) plans $3.8 billion in a polyester manufacturing unit in Jazan which will be the first Chinese wholly owned petrochemical project in the kingdom.
• Renewable Energy Projects: China is the world’s largest producer of wind and solar energy and the largest domestic and outbound investor in renewable energy. Seven of the top 10 solar panel manufacturers and six of the top 10 wind turbine makers by global market share were based in China in 2020. According to Saudi Vision 2030, 50% of electricity in Saudi Arabia will be via Renewables. This has led to partnerships by two countries and the ACWA partnership is one among them.
• Carbon Capture and Storage (CCS): Globally, 21 commercial CCS facilities with a total capacity of 40 million tonnes of carbon dioxide per year are operating. Three more are under construction, 16 are in advanced development and approximately 20 more are in early development stages. Sabic has one of the world's biggest CCS units (500,000 tonnes) and Aramco has a pilot project which uses 800,000 tonnes of captured CO2 from the Hawiyah gas plant. China also has multiple CCS projects in the region. China's largest CCS unit was completed in February 2021 which can capture 150,000 tonnes of CO2 from a coal plant in Shaanxi. With sharing of the technical know-how and Investments in the area jointly will open doors to a wider carbon trading system and a more sustainable CCS financing.

The above article which is my interpretation of understanding various articles and documents would not have been possible without the power of the Internet. The means to understand anything sitting in the comfort of your home or by mere Mobile is something that has always fascinated me. Kindly find a list of References used which is only a glimpse of the whole topic and in case you wish to read and understand more, trust me, there's a lot out there!

References

• OECD: China's Belt and Road Initiative in the global trade, Investment, and Financial Landscape
• The world Bank Belt and Road Initiative
• China Belt and Road Initiative Investment Report 1H 2021, by Dr. Christoph Nedopil Wang
• Graphics: How is BRI bolstering China-Saudi Arabia ties? - CGTN
• Brief: Investments in the Chinese Belt and Road Initiative (BRI) in 2020 during the Covid-19 pandemic – Green Finance & Development Center (greenfdc.org)
• Ministry of Commerce, China ( MOFCOM)
• KAPSARC China's Belt and Road Initiative and Saudi Vision 2030
• Belt and Road Initiative (beltroad-initiative.com)