Naresh777/Shutterstock MOUs are part and parcel of state visits, but those struck during Chinese President Xi Jinping's December visit to Saudi Arabia were particularly diverse — ranging from electric vehicle (EV) manufacturing to renewables financing, IT and housing. If realized, China — on top of its current investment — stands to become a serious partner in Saudi Arabia's attempt to develop a sustainable economy less reliant on oil.This, in turn, promises practical benefits to the kingdom’s eastward tilt in geopolitics. Save for later Print Download Share LinkedIn Twitter Attracting investment to develop domestic industry is critical to Crown Prince Mohammed bin Salman’s Vision 2030 reform plan, which aims to diversify Saudi Arabia’s economy away from what he has called an “addiction to oil." Xi's visit to Riyadh last year saw some 34 memorandums of understanding (MOUs) signed across a variety of sectors, and political observers say the potential scale of investment is huge. Notably, both sides have state backing to deepen ties, aligning Saudi Arabia’s Vision 2030 with China’s Belt and Road Initiative (BRI).The kingdom's doors are still open to the US and the West: "There is no doubt that working together with the second-largest economy in the world is vital to Saudi Arabia’s growth, but that does not mean that we cannot continue to work with the world’s largest economy,” Saudi Foreign Minister Prince Faisal bin Farhan said during Xi’s visit. But China now looks positioned to play a much greater role in the Saudi economic transition, as their relationship evolves from hydrocarbons into broader strategic collaboration. Indeed, Beijing has already delivered a boost by mediating a diplomatic rapprochement between Saudi Arabia and Iran, which should help ensure the security needed to lure capital — Chinese or other — to the kingdom.Already InvestingChina’s quiet, state-led approach has seen it expand its economic footprint in the Middle East, including Saudi Arabia, in recent years. While new Saudi Aramco investments in China's downstream grabbed the headlines last month, China already has a significant presence in the kingdom’s energy sector. The kingdom was the second-largest recipient of BRI investments last year, at $5.6 billion, according to the Green Finance and Development Center at Shanghai’s Fudan University.Around $4.6 billion was invested in Aramco Gas Pipeline Co. by the BRI-focused state Silk Road Fund and state China Merchants, as part of Aramco’s $15.5 billion gas pipeline leasing deal with a consortium led by BlackRock that completed in early 2022. Silk Road Fund was also part of a consortium led by US EIG Global Energy Partners that agreed a similar $12.4 billion infrastructure leasing deal in 2021 for Saudi oil pipelines.Over the past few years, as China started “greening” its BRI and Saudi Arabia set its net-zero target for 2060, more Chinese investments have also been made in the renewables sector, in which China is a world leader. China Energy Engineering Corp. clinched a contract to build a 300 megawatt solar project in Rabigh in 2021, while the Silk Road Fund acquired a 49% stake in Saudi state-controlled Acwa Power’s renewables arm a year earlier. The growth of Acwa's renewables portfolio in Saudi Arabia and other BRI partner countries now looks set to accelerate after Acwa Power in December signed MOUs with nine Chinese companies for projects in those markets.Plenty of PotentialNon-energy sectors are also of interest. "Investment in renewable energy within Saudi Arabia is not necessarily a top priority for China, but it is an underdeveloped area and aligns with Beijing's narrative of promoting a green Belt and Road Initiative," Kaho Yu, energy head at risk consultancy Verisk Maplecroft, told Energy Intelligence. But, he added, "China is actively diversifying its investment portfolio in Saudi Arabia to non-energy sectors, covering technology, logistics, construction, tourism and the medical industry, among others.”Prince Mohammed is also keen to attract Chinese investment to the $500 billion megacity project Neom. Chinese firms already involved include Powerchina on construction; China Railway Construction Corp.; and clean power firm Sungrow for energy storage. Sources tell Energy Intelligence that Prince Mohammed is keen on getting Neom listed by 2024 and will be seeking support from Chinese investors, although investor appetite is unclear.Huawei, the flag bearer of China’s Digital Silk Road, is also getting further entrenched in Saudi Arabia, in both 5G and smart cities — and despite US misgivings. Huawei signed up with Saudi telecom operator Zain in 2019 to introduce the first phase of its 5G network. More MOUs have since been signed, including, in December, one on cloud computing and high-tech complexes in Saudi cities. Huawei is also reportedly planning to move its Mideast headquarters to Saudi Arabia.Nuclear energy cooperation is also possible, with China National Nuclear Corp. among four bidders for Riyadh's first nuclear power plant. Elsewhere in the power sector, a deal inked by China General Nuclear and Saudi Arabia's Al-Jomaih in December presents a framework for jointly developing over 10 gigawatts of wind, solar, gas and geothermal capacity in the Mideast Gulf and wider Asia, according to Chinese media.The two countries are still feeling their way. An MOU between Aramco and Chinese oil giant Sinopec last summer called for “collaboration across carbon capture and hydrogen processes,” two areas in which Sinopec is trying to take the lead in China. But the December heads-of-state meeting instead saw announcements for more traditional downstream collaboration between the two companies. Chinese EV player Enovate also signed an agreement with local partner Sumou to set up Saudi Arabia’s first EV plant. But Enovate is a relatively new, and minor, EV player in China, raising questions about its capacity to implement that deal.Saudi institutional capacity could also be tested. Some foreign companies noted that regulations in the renewable energy sector still lack clarity. And in the past the kingdom mainly relied on Aramco as the go-to company to pull off big projects — including outside the energy sector — although Acwa Power also has a strong track record. The Saudi private sector more widely is being encouraged to partner with foreign companies to help it deliver on projects.Advantaged PartnerWhile US companies are highly active in the kingdom, Beijing’s ability to mobilize funds and state companies on a large scale gives China a potential advantage, while helping develop new business for Chinese companies that face a saturated market at home. China’s lead on low-carbon industrial development and growing technology sector also positions it as a serious partner to help Saudi Arabia achieve its ambitious renewable energy targets. “China can help Saudi Arabia build local capacity for technology development, key equipment manufacturing, project construction and operations,” Riyadh think tank Kapsarc said in a research note.The model of engagement contrasts with the West's, which has tended to revolve more around recycling petrodollars through weapons sales and service contracts than building local industry. Moreover, China’s initiative comes at a time when Washington’s industrial focus has shifted to home, as it seeks to build out the US’ own low-carbon industry through new government incentives.