Saudi Arabia’s SABIC to Establish a US$6.4 Billion China Petrochemical Complex
By Qian Zhou
On January 21, 2024, Saudi Basic Industries Corporation (SABIC) announced its final investment decision to construct a petrochemical complex in China’s southeastern Fujian province. This move aims to strengthen ties between China and Saudi Arabia.
What do we know about the deal?
According to the information available, the total investment of this project is around US$6.4 billion, the largest one-time investment received by Fujian province ever.
The project will be developed via a Sino-foreign joint venture formed by SABIC and the state-owned Fujian Energy & Petrochemical Group Co., LTD, in which SABIC holds 51 percent stake.
The complex will be located in Gulei petrochemical base in Zhangzhou (Fujian), one of the seven major petrochemical bases in China. The construction is scheduled to start in the first half of 2024. After completion in the first half or 2027 or so, the plant is expected to produce 1.8 million tons of ethylene per year. This will expand SABIC’s manufacturing operations in Asia and diversify its feedstock supply chain.
In fact, the “prototype” for the plant was initially proposed in 2018 when SABIC announced plans to construct a new “world-scale” petrochemical facility in Fujian. A memorandum of understanding (MoU) was signed with the Fujian provincial government in September of that year. In August 2021, the joint venture contract between SABIC and Fujian Energy & Petrochemical Group Co., LTD was finalized. The Sino-foreign joint venture was formally established in March 2022.
The final investment decision further shores up bilateral ties between China and Saudi Arabia, particularly in the petrochemical sector.
Saudi Aramco’s investments in China
In June 2020, Saudi Aramco announced the successful completion of its acquisition of a 70 percent stake in SABIC from the Saudi Public Investment Fund (PIF), enhancing Aramco’s integrated refining and chemical business capabilities. Consequently, SABIC’s Fujian project can also be seen as Aramco’s investment in China.
In addition to this project, Aramco has made multiple other investments in China’s petrochemical industry.
On March 27, 2023, Aramco announced that it signed a definitive agreement with Rongsheng Petrochemical to acquire 10 percent of the latter’s shares for RMB 24.6 billion.
In September 2023, Aramco announced that it had signed a framework agreement with Jiangsu Shenghong Petrochemical Industry Group Co., LTD., a wholly owned subsidiary of Oriental Shenghong, to acquire a 10 percent stake in the company.
Then in October 2023, to continue its downstream expansion, Aramco signed a provisional MoU with Shandong Yulong Petrochemical Co., Ltd. to buy a 10 percent stake in the company.
According to publicly available data, Saudi Aramco’s investment in China amounted to more than RMB 32.9 billion (approx. US$4.6 billion) in 2023, making it one of the top foreign investors in China last year.
Aramco’s management has repeatedly expressed confidence in the Chinese market. “China is our largest crude oil market, but Saudi Aramco’s relationship with the Chinese market is not limited to crude oil trade. We are also committed to investing in China’s downstream industries, especially refining and chemical integration projects,” said the division’s Asia president, Muteb Khaler, at the sixth China-Arab States Expo in September 2023.
China-Middle East ties
2023 has been a mixed year for foreign direct investment (FDI) into China, with US political pressure putting stress on the amount of FDI coming into the country. Yet, Beijing has been making efforts to diversify its FDI sources, and has been paying special attention to developing new FDI routes from the Middle East.
China is the Middle East’s main bilateral trade partner, with figures amounting to US$330 billion in 2021. Figures for trade with Saudi Arabia and the United Arab Emirates alone amounted to US$200 billion. Chinese investments in the Gulf – ports and infrastructure – has topped US$177 billion and these are creating additional investment and service opportunities in their own right with the knock-on effect of creating new infrastructure.
To facilitate business activity and investment, China has signed a range of tax agreements and bilateral investment treaties that offer fair treatment and protection for foreign investors. Moreover, China is in the process of negotiating free trade agreements with countries in the Gulf and the Levant. Though the negotiation has been ground to a halt after nine rounds of talks due to a series of diplomatic headwinds, following a visit by GCC representatives to Wuxi, Jiangsu province, China and the GCC pledged they would conclude negotiations on the FTA.