A few days ago, news broke that Saudi Arabia is considering accepting Yuan instead of dollars for oil sales to China. The move is coming amid the U.S.-led economic sanctions on Russia that have demonstrated the dollar’s dominance in the world’s financial markets. Witnessing the dollar’s power and the devastating impact sanctions had on the Russian economy, Beijing will continue to place top strategic priority on re-imagining the financial balance of scale, and the talks with Saudi Arabia seem to be a part of the effort.
Recently, Beijing has found a new acquaintance in Saudi Arabia. Historically, the country has been a close ally of the United States, but the relationship has been strained since the beginning of the Biden Administration. The Crown Prince, Mohammed Bin Salman, is known to have expressed dissatisfaction over the U.S. government’s withdrawal of support for Saudi Arabia’s conflict with Yemen and re-negotiation of the nuclear deal with Iran. Also, when Jamal Khashoggi, a Saudi journalist who was an outspoken critic of the Prince, was murdered and dismembered in Turkey in 2018, Biden accused the Crown Prince as the mastermind of the plot.
An examination of Saudi Arabia’s foreign investment track record hints toward a long-term financial alliance developing between Riyadh and Beijing. In April 2020, China announced the launch of Blockchain Service Network (BSN), a state-led initiative to create a global blockchain-based cross-cloud, cross-portal, and cross-framework public infrastructure network. The project is led by the State Information Center, a government agency, with state-owned companies such as China Telecom, China Unicom, and China Union Pay joining the effort. Furthermore, it has partnered with “a consortium of multinational corporations and financial institutions” to utilize the technology on an international scale.
Once completed, the service is expected to provide infrastructure for various applications of blockchain technology, from supply chain management to financial and legal transactions. BSN’s global adoption in the future would enable Beijing to monitor and exert influence on activities on the platform, similar leverage held by the dollar on the world’s financial markets.
The technology of BSN is developed by Red Date Technologies, a Chinese start-up. The company raised $30 million in Series A funding in June 2021, led by none other than Prosperity7 Ventures, the diversified growth fund of Saudi Arabia’s oil giant Aramco, controlled by the state.
Furthermore, Saudi Arabia’s $450 billion Public Investment Fund has applied for a Qualified Foreign Institutional Investor license in China. Once obtained, the license will enable the fund to directly trade Chinese stocks, rather than having to go through third parties. The fund has historically only invested in the Americas and Europe, holding equity stakes in many valuable companies including Disney, Boeing, and BP.
The financial alliance presents broader implications for the two countries. Saudi Arabia could leverage a close relationship with China to bolster the country’s strategic value, including resetting the strained relationship with the United States. In fact, the Crown Prince has openly expressed his ambitions to play more of a role on the world stage. For China, a closer relationship with the world’s largest oil producer and close U.S. ally will only help its quest to expand its sphere of financial influence and deliver a symbolic victory over the U.S.