China has selected Saudi Arabia for its first US dollar sovereign bond sale in three years. This move reflects growing financial ties between the two nations. The Chinese State Council approved the issuance of up to $2 billion in dollar debt next week in Riyadh. More details will be released later, according to the finance ministry.
Shift from Hong Kong to Saudi Arabia
China usually issues US dollar bonds in Hong Kong. However, choosing Saudi Arabia for this sale signals a deepening partnership between the two countries. Crown Prince Mohammed bin Salman seeks Chinese investment to support his Vision 2030 initiative, aimed at reducing Saudi Arabia’s oil dependency.
Saudi Arabia’s Growing Investment Appeal
Saudi Arabia is increasingly relying on international dollar bond sales to fund its large-scale projects. This year, it has become one of the biggest emerging market issuers. Meanwhile, China is eyeing major Saudi construction contracts as its property market faces challenges at home. Saudi Arabia’s solar energy boom has also attracted Chinese companies specializing in solar panels and batteries.
Strengthening Financial Partnerships
The decision to sell debt in Riyadh is part of a broader strategy to strengthen ties with Saudi Arabia. A senior banker at a Chinese state-owned lender explained that this move is part of China’s growing influence in the Middle East. Although Russia surpassed Saudi Arabia as China’s main oil supplier last year, Saudi Arabia remains a crucial exporter. The kingdom earns dollars from crude exports, which can be reinvested in dollar-denominated Chinese bonds.
Global Impact of Dollar-Denominated Bonds
While foreign currency bonds represent a small portion of China’s government funding, they offer global investors easier access to Chinese sovereign debt. Such bonds also help set a benchmark for other Chinese issuers in the dollar bond market. A Shanghai-based executive at a European bank noted that dollar debt issuance influences pricing for other Chinese issuers.
Saudi-Chinese Investment Agreements
In August, the Saudi Public Investment Fund (PIF) signed deals worth $50 billion with Chinese banks. These agreements aim to promote capital flows through both debt and equity investments. In October, Ewpartners, a Saudi-Chinese private equity firm, announced plans to establish a special economic zone in Riyadh to attract Chinese manufacturing investments.
Resuming International Bond Sales
In September, China broke its three-year absence from international bond markets with a €2 billion euro-denominated debt sale in Paris. This issuance occurred just before the European Central Bank cut interest rates, further highlighting China’s strategic return to global financial markets.
