Realizing the Saudi vision: leveraging China’s economic prowess and Hong Kong’s capital market expertise

China has not been a business destination for us but over the past years, especially since the visit of the Chinese president to Riyadh, a new era has been paved between the two countries and new historic milestones have been concluded in different sectors.
Last week, the Public Investment Fund signed six memorandums of understanding worth up to $50 billion with leading financial institutions: the Agricultural Bank of China, Bank of China, China Construction Bank, China Export & Credit Insurance Corporation, the Export-Import Bank of China, and the Industrial and Commercial Bank of China. The PIF aims to strengthen relationships with leading financial institutions and accentuate PIF’s commitment to enhancing partnerships globally.
China is still Saudi Arabia’s largest trading partner, constituting more than 18 percent of Saudi Arabia’s total exports where bilateral trade between the two economies is more than $80 billion, not to mention that Saudi Arabia has traditionally been China’s top oil supplier.
We at BMG Financial Group had our share of dealing with the Chinese in the semiconductor sector where we arranged for an agreement signing between King Abdulaziz City for Science and Technology and State Grid Corporation of China. The Saudi and Chinese parties have been exploring ways of mutually developing electronic chip design, manufacturing, and application in power digitalization and smart cities.

China is still Saudi Arabia’s largest trading partner, constituting more than 18 percent of Saudi Arabia’s total exports.

Furthermore, BMG participated in the capital market forum in Hong Kong organized by Tadawul last May. Since that forum, Chinese and Saudi stock exchanges have been in talks to allow exchange-traded funds to list on each other’s bourses as the countries look to deepen financial ties amid warming diplomatic relations. For China, an “ETF connect tie-up with Saudi Arabia will be a gateway to open its trillions of dollars” worth of financial markets to international investors. The cross-listing of ETFs will allow investors in China and Saudi Arabia to trade funds tracking specific stocks or bond indexes listed on each other’s stock exchanges.
Given that the Hong Kong dollar is pegged to the US one and the interest rate differential between that of HKD and USD is treading lower for the former, Saudi companies will find raising debt financing in HKD cost-efficient as they tap into a larger source of liquidity. Furthermore, Saudi companies and government-related entities like the PIF by issuing sukuk in Hong Kong’s debt capital market can help realize the aspiration of the Hong Kong Monetary Authority to add more depth and breadth to Hong Kong’s debt capital markets and strengthen Hong Kong’s position as the fund-raising hub for East Asia.
In my opinion, the PIF and other major Saudi institutions can kick-start the development of a nascent sukuk issuance market in Hong Kong’s debt capital markets which are dominated by large capitalized corporate conglomerates.

Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.