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Ralph Jennings

Zhao Ziwen

A deepening of economic relations between China and Saudi Arabia will advance the use of the yuan for oil purchases, S&P Global Ratings said in a report on Tuesday – though it will take time for those trades to become profitable.
Non-oil linkages between the two countries, galvanised by President Xi Jinping’s visit to the Persian Gulf state in December 2022, were predicted to “provide more outlets” for the Chinese currency’s use in payment on bilateral projects “across a widening range of sectors.”
Riyadh’s Saudi Vision 2030 initiative for economic transformation will make China-Saudi relations “very different from what we’ve seen in the past” and elevate Saudi use of the yuan, said Charles Chang, S&P’s Greater China country lead.
“This involves many sectors, larger sums of financial flows both ways and many more companies,” Chang said in an interview.
“Economic and strategic alignment in terms of development plans” could further elevate the yuan in Saudi Arabia despite wider geopolitical tensions, he added.
The tripling of China’s trade with the Middle East observed over the past two decades, report authors said, adds potential for the broader use of the yuan among Gulf states.


China has been promoting the yuan as an alternative currency in international trade – and as a reserve currency – to keep its cross-border financial activity stable in the face of exchange-rate risks and a potential foreclosure of access to foreign institutions or international payment systems.
The yuan’s share of world trade tripled over the past two decades, S&P said, from 4 per cent to 13 per cent.
Yuan-for-oil deals would let China buy fuel without the threat of intervention from its chief geopolitical competitor – the United States – whose dollar serves as the global reserve currency, and carries a considerable amount of economic heft.
But use of the Chinese currency – including to settle oil transactions as a petroyuan in lieu of the petrodollar – could be risky at the moment, the ratings agency said.
The yuan’s limited use in international trade and finance means an accumulation of the currency outside China would rack up “substantial costs” and “raise currency risks”.
Most major oil exporters, including Saudi Arabia, Oman and Kuwait, have “substantial” positive trade balances with China. A shift to yuan-only trade, S&P said, would leave them with more income than expenditures.


“While some of this could be held or invested, the excess ‘petroyuan’ will need to be exchanged into other currencies, thereby incurring additional costs and exchange rate risks,” the report said.
Some Middle Eastern countries are already making the pivot.
Iraq allowed a yuan trade settlement with China for the first time in February 2023, and a month later China used its currency to buy liquefied natural gas (LNG) produced in the United Arab Emirates.
Chang of S&P said most Middle Eastern countries – especially the Gulf states – may follow in Saudi Arabia’s footsteps and adopt the yuan in greater proportion, but over a time frame of decades. Oil-producing nations’ renminbi usage, he added, will largely depend on whether they can effectively spend the currency like Riyadh.
China may need to make the next move, S&P’s report suggested.
“Beijing has yet to lay out a road map for resolving … issues and for liberalising the country’s currency and capital account,” authors said. “This leaves a high degree of uncertainty on the ability to manage future petroyuan-related risks.”


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Yuan

As China-Saudi ties develop, so will cross-border yuan use, ratings agency says

China’s developing relationship with Saudi Arabia could also benefit its efforts to internationalise the yuan. Photo: Xinhua

UAE business hub eyes Chinese businesses amid ‘very, very strong’ China ties

Expo City Dubai. Photo: Expo City Dubai

Yasmina Villas, the latest in its residential offering at Expo City Dubai. Photo: Expo City Dubai

Manal al Bayat, chief engagement officer at Expo City Dubai. Photo: Expo City Dubai

A participant walks at Expo City Dubai, the venue of the 2023 United Nations Climate Change Conference. Photo: EPA-EFE

Chinese EV makers train sights on Middle East, Brazil, Russia after US, EU raise tariffs

This photo taken on April 18, 2024 shows BYD electric cars for export waiting to be loaded onto a ship at a port in Yantai, in eastern China’s Shandong province. Photo: AFP

This photo taken on July 17, 2023 shows BYD’s Atto 3 at a shop in Tel Aviv, Israel. Photo: Xinhua

Xi pledges deeper China ties with Arab states, pushes 2-state solution for Gaza peace

China’s President Xi Jinping appears for a group photo with Arab leaders at the 10th ministerial meeting of the China-Arab States Cooperation Forum in Beijing on Thursday. China is seeking to strengthen relations with Arab states as a model for maintaining world peace and stability, Xi was quoted as saying by state media at the gathering. Photo: Reuters

Chinese President Xi Jinping holds a welcome ceremony on Wednesday for his Egyptian counterpart Abdel Fattah el-Sisi, one of four Arab leaders on state visits to Beijing this week to attend the China-Arab States Cooperation Forum. Photo: Xinhua

Chinese companies look to Qatar as Middle East entry point, alternative to fickle West

Qatar is marketing itself to Chinese companies as a venue for investment and window into the Middle East and Africa. Photo: Bloomberg

Qatar is marketing itself to Chinese companies as a venue for investment and window into the Middle East and Africa. Photo: AFP

Jack Lau, president of the Qatar Science and Technology Park, says 20 Chinese companies have shown interest in becoming members. Photo: Nathan Tsui

China-Middle East commercial ties enjoying a ‘renaissance’ as politics, trade spats strengthen shift from West, consultancy says

BYD electric cars waiting to be loaded on a ship at Taicang Port at Suzhou in eastern Jiangsu Province. Photo: AFP

Commercial ties ‘have been transformative,’ reflecting a broader and deeper relationship, says Ben Simpfendorfer, a partner at OlverWyman. Photo: Nora Tam

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With more trade and projects planned between China and Saudi Arabia, S&P Global Ratings says, use of the yuan is likely to go up in turn


Yuan internationalisation may get a boost from Saudi Arabia, S&P Global Ratings says, as greater cooperation with China is likely to lead to more frequent use of the renminbi in cross-border transactions.
