Saudi’s Aramco could list in Hong Kong as China relations warm

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News broke this week that Saudi Arabia’s state oil company, Aramco, is further strengthening its relationship with the Chinese market. Aramco’s latest deal is the acquisition of 10% of oil refiner Rongsheng Petrochemical Co. for $3.6 billion. This deal was announced a day after Aramco confirmed a new venture with two other Chinese oil companies to build a refinery in the northeast of the country.

These deals could help fuel speculation that Aramco could list one of its subsidiaries on the Hong Kong Stock Exchange (HKSE). On a recent trip to the Gulf, Hong Kong Chief Executive John Lee visited Riyadh and emphasized his city’s credentials as a global financial hub. Lee announced that Hong Kong and Saudi Arabia are to launch formal negotiations on an Investment and Defense Promotion Agreement. He outlined how “the agreement will further promote bilateral investment flows and strengthen investor confidence on both sides.” This included Aramco’s potential listing on the HKSE.

The move is another sign of the growing diplomatic and economic engagement between China and the Gulf as relations with Washington come under further strain. Saudi Arabia in particular has clashed with the US in recent months, with President Biden – who once vowed to make Mohammed bin Salman a global “pariah” – criticizing the kingdom’s decision to restrict supplies oil The flurry of deals between Saudi Arabia’s largest company and major Chinese firms suggests that Beijing is seeking to gain geopolitical advantage from these dynamics.

Dr. Edward Howell, a lecturer in East Asian international relations at the University of Oxford, told Al-Monitor that Aramco’s increased involvement with China “appears to be a result of growing ties between Saudi Arabia and China.”

“As for strengthening Sino-Saudi Arab ties, China wants to co-opt more states within its orbit as part of Beijing’s alternative vision of an international order to rival that established by the US. Just this week, Saudi Arabia approved a memorandum that allows the state to become a dialogue partner in the Shanghai Cooperation Organization, which involves India, Pakistan and Russia, as well as several Central Asian states. ” Howell said. “China therefore appears intent on forcing US allies, including those in the Gulf, to rethink this relationship despite continued US promises of Washington’s security commitment to the region.”

Howell also cited China’s recent brokering of the pledge between Riyadh and Tehran to restore relations as evidence of its growing presence in the region.

Geopolitics aside, Aramco’s listing on the HKSE seems to make economic sense for both countries as well. Although Aramco was listed on the Tadawul Stock Exchange in 2019 in a record-breaking IPO that raised a historic $25.6 billion, MBS initially wanted to list the company in an international financial capital such as New York. This did not materialize due to concerns that the company was not transparent enough to meet the disclosure requirements for publicly traded companies in the United States.

Although Hong Kong has undoubtedly shrunk as a financial hub after three long years of isolation due to COVID-19, and Singapore is now widely regarded as Asia’s leading financial centre, the city still holds considerable prestige in international markets. Aramco’s listing in Hong Kong would help to reassert Saudi Arabia’s credentials as an economic power of international importance.

Jaejoon Woo, former director and chief economist for Korea at Bank of America Merrill Lynch in Hong Kong, also indicated that the possible listing would be advantageous for Hong Kong as it tries to re-engage with the world after three years of locking.

“Hong Kong’s new leader, John Lee, is keen to restore Hong Kong’s reputation as a leading financial center after the highly restrictive COVID measures that have driven foreign companies and their domestic residents away over the past few years,” Woo told Al-Monitor. “In this context, the listing of a huge company like Aramco in Hong Kong would be a great demonstration to signal that Hong Kong is back in business.”

There are several layers to the potential listing of Aramco in Hong Kong and the increased engagement between Riyadh and Beijing. China is Aramco’s largest market, so it is no surprise that the company should look to promote its presence in the country. A mega-listing would also be beneficial for Hong Kong after several years of economic contraction and international decline. However, the transition is undoubtedly of greater importance in the context of shifting geopolitical trends in the region.

“The potential listing of Aramco in Hong Kong can be seen as another concrete step towards strengthening ties between Saudi Arabia and China,” Woo said. “This is happening at a time when the US seems to be withdrawing from the Gulf, and China is trying to expand its influence there.”

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