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14 December 2022

Expanding China-GCC ties to include renewable investments

President Xi Jinping’s high-profile visit to Saudi Arabia, which included participation in the first China-Arab States Summit and a Gulf Co-operation Council (GCC) Summit, was used – among many other things – as an opportunity to announce business deals.

The Saudi Press Agency reported thirty-four Chinese investment agreements on December 8th split across eight categories including solar power and green hydrogen.

One such is a framework co-operation agreement between China’s CGN Energy and Saudi Arabia’s Al Jomaih Group covering the development of 10 GW of wind, solar, gas and coal power plants across the Persian Gulf, Bangladesh, Azerbaijan, and other Asian countries.

Another is ACWA Power’s strategic agreements with nine Chinese companies, including a $1.5 billion deal with Power China, concerning renewable projects.

The prime motive behind the expanded GCC-China ties is of course the oil and gas trade. China accounts for over 20% of global gas and oil imports and the GCC region accounts for over 25% of oil exports. In Oman’s case over three quarters of its oil export is sent to China.

But infrastructure investment is the second-biggest interest at play here and is a category which will include ever more renewable energy development. China, for its part, almost totally dominates solar manufacturing and is working towards similar dominance of the wind supply chain. The GCC doesn’t want to blunder into a future in which oil and gas demand has been killed off by the energy transition and it doesn’t  have enough green hydrogen and other industries to stave off an economic and social collapse.

Xi Jinping’s keynote speech included a proposal to “build a new pattern of three-dimensional energy cooperation.” – which means more than just fossil fuels. Xi Jinping began his comments on energy development with a promise to “continue to import large quantities of crude oil from the GCC countries, expand imports of liquefied natural gas, and strengthen cooperation in upstream oil and gas development, engineering services, storage, transportation, and refining,” and mentioned the use of the Chinese currency for such trade. But then he immediately went on to promise strengthened co-operation on hydrogen, energy storage, wind, photovoltaics, nuclear, smart grids, and domestic GCC manufacturing of renewable energy equipment.

For now the solar production capacity in Saudi Arabia and its neighbors appears to be far downstream – modules, backsheet, and so on, pushed by Chinese involvement that picked up since 2020, with the biggest event being the Silk Road Fund acquiring a 49% stake in Saudi developer ACWA Power in 2019. ACWA Power is a major renewable project developer but one recent large Chinese investment related announcement was a 1.5 GW gas plant in Uzbekistan, also 49% invested by the Silk Road.

Going by the data of the China Global Investment Tracker, China has invested $92 billion in construction work in the six GCC countries since 2005. That was over 10% of its global overseas investment in construction work. That was a much larger share than non-construction investments, and one which has not declined much as China’s overseas investments declined from over $250 billion in 2018 to around $100 billion each in 2020 and 2021. The GCC countries can certainly use all this and more – besides economic diversification, the Saudi Crown Prince’s grandiose NEOM city building project alone will need at least $300 billion for its first phase.