China Picks Riyadh for Rare Dollar Bond Sale, Bringing Saudi Arabia Closer to BRICS and Advancing De Facto Dedollarisation

For both countries, the planned bond issuance signifies a growing convergence of interests, embedding Saudi Arabia, once firmly within the US sphere of influence, as a pivotal partner for BRICS.

China has selected Saudi Arabia to host its first US dollar-denominated sovereign bond sale in three years, amounting to $2 billion. This move is significant as it accelerates a new trend in China-Saudi relations, with Riyadh, despite shying away from accepting BRICS membership invitation, strengthening its financial collaboration with the bloc's leader and contributing to efforts aimed at dedollarisation. The step also fulfils the Chinese President's call for deepening financial ties with Saudi Arabia, made during the 2022 China-Arab States Summit in Riyadh, which was the first summit involving the heads of state and representatives of 21 Arab League countries and the Chinese head of state.

China's initiative offers Saudi Arabia a mechanism to recycle its revenues from energy sales to China into Chinese financial assets rather than Western financial assets, a practice that has been the norm since the 1970s. If sustained, this trend could pave the way for the petroyuan, even if conducted through US dollars. Given that the Saudi riyal is pegged to the dollar, this transaction can also be viewed as if it was conducted in national currencies. While not a direct attempt at dedollarisation, this approach functions similarly by keeping funds outside the US financial system and effectively meeting China’s funding needs.

Traditionally, China has used Hong Kong as the venue for such issuances, given the city’s role as a financial gateway for international investors. However, shifting the issuance to Saudi Arabia underscores China's intent to entice the kingdom to align more closely with BRICS by aiding its ambition to become a global investment hub, a central goal in Saudi Arabia’s Vision 2030.

The listing is expected to attract interest from Saudi and regional investors, who might otherwise face limited opportunities to access Chinese debt, thus providing them with lucrative non-Western avenues to recycle some of their liquidity. While China’s international dollar bond sales represent a relatively minor share of its government’s financing, they serve as benchmarks for other issuers and offer global investors a straightforward means to purchase Chinese sovereign debt, potentially making Saudi Arabia a key player in future Chinese debt issuance.

This move follows a week of milestones in Sino-Saudi financial collaboration, including the debut of the SAB Invest Hang Seng Hong Kong Exchange-Traded Fund (ETF) on the Saudi Exchange. Issued by Saudi investment firm SAB Invest, the ETF, which holds a diversified portfolio of assets, is linked to the Hang Seng index, granting Middle Eastern investors direct exposure to Hong Kong-listed stocks. Just days earlier, the Albilad CSOP MSCI Hong Kong China Equity ETF, Saudi Arabia’s first ETF tracking Hong Kong markets, launched with an initial size of over $1.2 billion, making it the largest ETF in the Middle East.

A Deepening Alliance
China has historically maintained a low profile in Middle Eastern politics, primarily acting as a voracious oil client while allowing the US to dominate the region.

However, the image of the Chinese leader presiding over the historic diplomatic agreement between Saudi Arabia and Iran signalled shifting regional dynamics. The protracted conflicts in Ukraine and Gaza have spurred discussions in the Gulf about the necessity of diversifying economic and security alliances.

Despite Russia recently surpassing Saudi Arabia as China’s top oil supplier, the kingdom remains crucial to Beijing’s energy security as its second-largest supplier. Trade-wise, China has been Saudi Arabia's largest trade partner since 2014, with bilateral trade reaching $97 billion in 2023. These robust ties have laid the groundwork for broader diplomatic and economic collaboration between China and Saudi Arabia.

For both countries, the planned bond issuance signifies a growing convergence of interests, embedding Saudi Arabia, once firmly within the US sphere of influence, as a pivotal partner in China’s Belt and Road Initiative (BRI) and gradually integrating it into BRICS-aligned structures.

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