Aurelia Butler

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Chinese exports and investment are pouring into Saudi Arabia as the kingdom’s demand for green tech deepens a relationship once defined by oil sales and challenges business ties with its traditional western partners.Bilateral trade has for many years been almost totally dominated by Chinese purchases of Saudi oil. But now, Chinese exports to Saudi Arabia are tracking towards a record high, at $40.2bn in the first 10 months of the year, up from $34.9bn for the same period last year, according to Chinese government data.China has also become the kingdom’s largest source of greenfield foreign direct investment, with investments from 2021 to October this year totalling $21.6bn, about a third of which were in clean technologies such as batteries, solar and wind, according to investments tracked by fDi Markets. This compares with $12.5bn from the US, the next highest.The figures herald a sea change, with China eclipsing the kingdom’s traditional investment partners, the US and France. Many of the Chinese deals have yet to show up in official Saudi figures, indicating the capital has yet to be deployed.A “major shift” was under way, said Camille Lons, an expert on China and the Middle East and policy fellow at the European Council on Foreign Relations. “When the Saudis look at the map of the world, they increasingly see themselves as this ‘middle power’,” she said. “They try to be less dependent on the US. Deepening their relationship with China is a way to do exactly that.”Stronger Saudi-China ties could complicate the outlook for the incoming Trump administration in any dealings with Riyadh, said Lons. “If Trump decides not to deliver what they really want in terms of security guarantees, tech co-operation, they can agitate with the Chinese ‘card’, saying ‘we have other options’.”Some content could not load. Check your internet connection or browser settings.Analysts said the deepening economic co-operation followed high-level political and diplomatic efforts, including Chinese President Xi Jinping’s late 2022 trip to Riyadh, his talks with Saudi Arabia’s Crown Prince Mohammed bin Salman and Beijing’s intervention in March 2023 to help restore ties between Saudi Arabia and Iran.“The [2022] meeting of the two heads of government basically triggered meetings down the chain,” said Charles Chang, greater China lead for corporate ratings at S&P Global Ratings. “The relationship between China and Saudi Arabia began to diversify very rapidly.”For Xi, trade with Saudi Arabia is strategically important to deepen China’s influence outside the US and Europe, where it faces rising threats of sanctions and tariffs, analysts said. China’s focus on trade and investment also marks a change from the debt-led Belt and Road infrastructure plan.For Prince Mohammed, the kingdom’s day-to-day ruler who co-chairs the China-Saudi Arabia High-Level Joint Committee, Chinese investment supports his efforts in achieving his so-called Vision 2030 modernisation drive, designed to diversify the economy, transition to cleaner energy and project the kingdom on to the global stage.Riyadh has so far been careful to balance relations with the US, its most important military partner, and has limited trade with China in sensitive industries such as defence and artificial intelligence, according to Saudi officials.Saudi investment in China’s oil and gas industry as well as Chinese investment in the Saudi renewable energy sector is powering the expansion of trade. Ken Liu, head of China renewables, utilities and energy research at UBS, forecasts $432bn in additional energy-related annual trade between the Middle East and China by 2030.There has been a flurry of new deals in recent months highlighting the deepening ties. Backed by Saudi investment, ageing Chinese oil refineries are diversifying towards more downstream petrochemical products including diesel, methanol and ammonia.Saudi Aramco in September expanded its Chinese refinery and chemical partnerships with Rongsheng and Hengli, two of China’s biggest petrochemical groups. Saudi Aramco also announced a plan with China National Building Material Group to build clean tech manufacturing facilities in Saudi Arabia.Investment group EWPartners, which is backed by the kingdom’s sovereign wealth fund PIF, in mid-October announced a $2bn plan for a so-called KSA-Sino special economic zone at Riyadh’s King Salman International Airport and for more Chinese companies to localise manufacturing there.A bid to better integrate the two countries’ financial systems is also gaining traction. In June, China approved exchange traded funds that track the performance of the FTSE Saudi Arabia Index, allowing Chinese investors to gain exposure to top-tier Saudi stocks, including Saudi Aramco and Saudi National Bank. In return, Saudi Arabia’s Capital Market Authority allowed the listing of the country’s inaugural ETF tracking Hong Kong-listed Chinese stocks.In August, PIF signed memorandums of understanding worth a total of $50bn with six of China’s biggest state-owned banks. And in November, China picked Saudi Arabia as the venue for its first sale of US dollar sovereign bonds in three years.Beijing is also trying to leverage deeper Saudi ties to promote broader international use of the Chinese currency. The kingdom, like most other international oil producers, has long been reluctant to accept payment in renminbi because of a limited ability to use the proceeds.Still, in a research note, S&P analysts pointed out that while meaningful renminbi-denominated oil trading between China and Saudi Arabia might still be decades away, the more comprehensive Saudi-China ties could over time support the so-called petroyuan.Ultimately, said Chang of S&P, the ground was prepared for the relationship to increasingly “go beyond oil”. “If Saudi Arabia looks for countries that have been able to industrialise in a centrally planned way very rapidly, China is probably the best example. That puts the long-term interests of the two countries in alignment.”Additional reporting by Wenjie Ding in Beijing More

Investors reacted by pushing the Australian dollar 0.3% lower to $0.6468, and markets ascribed a slightly higher chance of a rate cut next year, although a first easing is still not fully priced in until May.Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product rose 0.3% in the September quarter, missing market forecasts of 0.4%. Annual growth slowed to 0.8%, from 1.0% the previous quarter, marking the slowest pace since late 2020. The Reserve Bank of Australia had expected economic growth would pick up to 1.5% by the end of the year as tax cuts flowed through to households’ wage pockets and consumers became more confident that interest rates would not increase again.However, the surprisingly weak third quarter result is putting that in jeopardy. For the quarter, government spending made a vital contribution to growth, but household spending, which accounts for half of GDP, added nothing to GDP. GDP per capita dropped another 0.3%, down for the seventh straight quarter. The central bank has kept interest rates steady at a 12-year high of 4.35% for the past year and signalled little inclination to ease anytime soon, in part due to the surprising resilience of the labour market. Headline consumer price inflation slowed sharply to 2.8% in the third quarter, mainly due to government rebates on electricity bills. Core inflation was more persistent at 3.5%, still above the RBA’s target range of 2% to 3%.Financial markets are pricing in almost no chance of a cut in the 4.35% cash rate at the RBA’s next meeting on Dec. 10. More

The brokerage said that recent inflation data showed disinflation still remained sluggish, and that inflation was expected to peter out further in the remainder of 2024. Core personal consumption expenditures inflation- the Fed’s preferred inflation gauge- is expected to slow to a 0.16% average pace in the final two months of 2024, GS said in a note. But the brokerage warned that tariffs are likely to “delay a return to 2% inflation in 2025.”“We expect tariff increases on imports from China and autos that raise the effective tariff rate by 3-4 percentage points (pp), which we estimate would raise core PCE inflation by about 0.3-0.4pp next year, leaving it at 2.4% in December 2025,” GS analysts wrote in a note.Still, they said that inflation from tariffs was likely to be a one-time increase, and would not deter a trend of falling inflation. Excluding the impact of tariffs, GS expects core consumer price index inflation to fall to an annual pace of 2.4% in December 2025 from 3.2% in December 2024, amid easing housing and transportation costs. The brokerage noted that sequential measures of underlying inflation had eased in recent months, and that high inflation prints seen earlier this year appeared to be more of residual seasonal factors than a reacceleration in inflation. Concerns over higher U.S. import tariffs grew in recent weeks after President-elect Donald Trump threatened to impose higher duties on several countries, including the BRICS bloc, Canada, and Mexico. Trump had also pledged a 10% tariff on all imports to the U.S., and 60% in additional tariffs on imports from China. The President-elect is expected to dole out increase corporate tax breaks and expansionary policies in the coming years, potentially underpinning inflation and interest rates in the long term. More

SEOUL (Reuters) -South Korea’s finance ministry said on Wednesday it is ready to deploy “unlimited” liquidity into financial markets if needed after President Yoon Suk Yeol lifted a martial law declaration he imposed overnight that pushed the won to multi-year lows. The announcement came after Finance Minister Choi Sang-mok and Bank of Korea Governor Rhee Chang-yong held emergency meetings overnight, and ahead of the BOK’s extraordinary meeting session abruptly scheduled for 9 a.m. local time (0000 GMT) on Wednesday.”All financial, FX markets as well as stock markets will operate normally,” the government said in a statement.”We will inject unlimited liquidity into stocks, bonds, short-term money market as well as forex market for the time being until they are fully normalised.”The country’s financial regulator is ready to deploy 10 trillion won ($7.07 billion) in a stock market stabilisation fund any time, the Yonhap news agency said.South Korea’s won trimmed losses early on Wednesday, coming off the two-year low of 1,443.40 hit overnight after Yoon lifted his shock martial law declaration, honouring a parliamentary vote against the measure.South Korea’s parliament, with 190 of its 300 members present, unanimously passed a motion on Wednesday requiring the martial law be lifted.Korean shares fell nearly 2% at open but also pared losses. Chipmaker Samsung Electronics (KS:005930) fell 1.31%, while battery maker LG Energy Solution slid 2.64%.The KOSPI index and won are among Asia’s worst performing assets this year.Overnight, U.S.-listed South Korean stocks fell, while exchange-traded products in New York including iShares MSCI South Korea ETF and Franklin FTSE South Korea ETF lost about 1% each.”Martial law itself has been lifted but this incident creates more uncertainty in the political landscape and the economy,” ING economists wrote.The political turmoil comes as Yoon and the opposition-controlled parliament clash over the budget and other measures.The opposition Democratic Party last week cut 4.1 trillion won from the total budget proposal of 677.4 trillion won ($470.7 billion) the Yoon’s government submitted, putting the parliament in a deadlock over control of the 2025 annual budget. The parliamentary speaker on Monday stopped the revised budget from going to a final vote. A successful budget intervention by the opposition would deal a major blow to Yoon’s minority government and risk shrinking fiscal spending at a time when export growth is cooling. “The negative impact to the economy and financial market could be short-lived as uncertainties on political and economic environment could be quickly mitigated on the back of proactive policy response,” Citi economist Kim Jin-wook said in a report. More

Reduced power cuts and expectations of lower interest rates have improved South Africa’s financial stability following successful elections in June, the country’s central bank said in November.The coalition government of national unity (GNU), formed in June after the African National Congress lost its parliamentary majority for the first time in 30 years, boosted business confidence.”The ratings affirmation highlights that despite nascent improvements, South Africa’s economy is likely to remain subdued,” Moody’s said in its report. It also anticipates the energy sector to increasingly drive private sector investments.The agency expects the country’s economic growth to remain on the slow lane and government debt burden to be stable with balanced risks.Moody’s anticipates that the new government will likely pursue structural reforms to alleviate existing growth bottlenecks, and continue fiscal consolidation efforts to mitigate spending pressures from social demand, interest payments and state-owned enterprises.In November, S&P revised South Africa’s outlook to positive on better reforms by the new government. More

WASHINGTON (Reuters) -Republicans in the U.S. Congress are discussing a two-step plan to push ahead on President-elect Donald Trump’s agenda when they take control of both chambers next year, potentially starting with border security, energy and defense before turning to tax cuts.Incoming Senate Majority Leader John Thune, whose Republicans will hold a 53-47 majority, laid out a plan in a closed-door party meeting on Tuesday that included a call from Trump himself. It aims to use a parliamentary maneuver to bypass the chamber’s “filibuster” rule that requires 60 senators to agree to advance most legislation.According to the Senate plan, the first bill would focus on Trump’s agenda for border security, energy deregulation and defense spending, while the second would extend tax cuts from the 2017 Tax Cuts and Jobs Act passed during the first Trump presidency, which are due to expire next year.Thune told reporters that the plan amounted to “options, all of which our members are considering.”To enact Trump’s agenda, the Senate will have to work closely with the president-elect and the House of Representatives, which is expected to have a razor-thin Republican majority.”We were always planning to do reconciliation in two packages. So we’re discussing right now how to allocate the various provisions, and we’re making those decisions over the next couple of days,” said House Speaker Mike Johnson, who joined Senate Republicans at their meeting. “There are different ideas on what to put in the first package and what in the second, and we’re trying to build consensus around those ideas,” Johnson told reporters. The speaker also said that he believes Congress in coming weeks will pursue a continuing resolution, or CR, that would fund federal agencies into March. Current funding is set to expire on Dec. 20. Before moving a first reconciliation bill, the House and Senate will need to agree on a budget resolution to unlock the “reconciliation” tool they plan to use to bypass the filibuster. Aides said senators hope to do that by the end of January and then move quickly to complete the first bill by March 31.”We have the trifecta for two years. About 18 months is all we’re really going to have to really get things done,” Republican Senator Mike Rounds told reporters.Democrats also leaned heavily on reconciliation to pass legislation when they held control of both chambers during the first two years of President Joe Biden’s term.Republican Senator Rand Paul, a fiscal hawk, raised concerns about the plan’s cost.”This is not a fiscally conservative notion,” Paul said. “So at this point, I’m not for it, unless there are significant spending cuts attached.” Extending Trump’s tax cuts for individuals and small businesses will add $4 trillion to the current $36 trillion in total U.S. debt over 10 years.Trump also promised voters generous new tax breaks, including ending taxes on Social Security, overtime and tip income and restoring deductions for car loan interest. The tab is likely to reach $7.75 trillion above the CBO baseline over 10 years, according to the Committee for a Responsible Federal Budget, a non-partisan fiscal watchdog group. More

BENGALURU (Reuters) – A retreating euro will remain weak in the near term, trapped between political ructions building in France and expected new U.S. tariffs early next year that are boosting the dollar’s allure, a Reuters poll of market strategists found.While there seemed almost no prospect for a rebound soon, most strategists were nonetheless convinced the euro would not fall to parity with the U.S. dollar in the coming three months, mainly because a lot of bad news is already priced in.With France’s government likely to collapse later on Wednesday after far-right and left-wing parties submitted no-confidence motions against Prime Minister Michel Barnier, the euro has almost no chance of recovering any of the nearly 6% loss it has suffered since late September.Euro zone growth concerns, along with stronger prospects for more European Central Bank interest rate cuts in coming months, pushed the single currency to a two-year low of $1.03 in late November.Interest rate futures are pricing in over 1.5 percentage point more of ECB rate reductions by end-2025, twice the amount predicted for the U.S. Federal Reserve, where expectations have been in retreat on revived domestic inflation risks.Median forecasts of nearly 70 currency strategists in a Dec. 2-3 Reuters poll on the euro, currently trading around $1.05, showed it there in three months and around 1% lower at $1.04 in six, markedly lower than $1.10 and $1.11 in a November survey.”There are distinct reasons why the euro is vulnerable, very much linked to structural and political issues facing both France and Germany. A pressing question is whether those problems will remain confined to France or if there will be an element of contagion,” said Jane Foley, Rabobank’s head of FX strategy.”Germany too seems to be on the back foot, currently dealing with stagflation – a problem it has been unable to shake off – which is not a good sign for the euro.”NO PARITY TO THE U.S. DOLLAR YETStill, only a handful of strategists predicted in their given forecasts the euro would equal or fall below the dollar within six months. The last time it did so was between September and November 2022, where it mostly traded below the greenback.Asked to rate the chances of the common currency reaching parity to the dollar over the coming three months, a near-60% majority, 24 of 42, said it was ‘low’.”In the next few months, the chances of parity are relatively low given just how extreme euro bearishness already is, especially in the relative rate-cut pricing for the Fed versus the ECB,” said Erik Nelson, macro strategist at Wells Fargo (NYSE:WFC).”While there’s a lot of things, particularly geopolitical, that could push euro below parity next year, positioning currently is already a little extreme.” The remaining 18 said the chance of parity by end-February was ‘high’ or ‘very high’.In a separate recent Reuters survey of economists who cover the euro zone and ECB policy, nearly 90%, 34 of 39, said President-elect Donald Trump’s proposed tariffs would significantly affect the euro zone economy in coming years.”If Trump was to threaten to put in place higher tariffs against the EU at the start of next year or if the ECB steps up the pace of rate cuts – perhaps a larger 50 basis point cut at some point over the next three months – that would drag euro-dollar down towards and potentially below parity,” said Lee Hardman, senior currency analyst at MUFG.A near-90% majority, 38 of 43 responding to an additional question said the U.S. dollar was more likely to trade stronger than they predicted in the coming three months than undercut those forecasts.(Other stories from the December Reuters foreign exchange poll) More