China and the World

Steely approach

Baosteel signs Saudi deal


Partnering with Saudi Aramco

Saudi Arabia’s oil-producing titan Saudi Aramco is hoping that it will be third time lucky in getting a massive new steel plant off the ground in the kingdom after signing a memorandum of understanding (MoU) with China’s Baosteel.

Two previous efforts involving China’s near-neighbours and strategic rivals Japan and South Korea, have both come to nothing in recent years. Japan’s Nippon Steel and Sumitomo Metallurgical Corp led the way in 2018, followed by an MoU with South Korea’s POSCO as recently as December 2020. Now it’s China’s turn to try to seal the deal.

Saudi Aramco has been keen to set up a steel mill to service its domestic oil and gas sector. The plan forms part of the company’s IKTVA (In-Kingdom Value Add) programme to enhance localisation efforts. In fact, the new MoU is one of 22 announced this month, encompassing a host of international companies including Honeywell, Shell and Hyundai. They all fall under another campaign called Aramco Namaat, which means ‘collective growth’ in Arabic. The aim is to drive economic growth and diversification as part of Saudi Arabia’s wider Vision 2030 plan to reduce its reliance on the oil industry.

Baosteel’s inclusion on the list is significant in two respects. Firstly, it underscores deepening economic ties between Beijing and Riyadh. China is now Saudi Arabia’s biggest economic partner with bilateral trade jumping from $4 billion in 2001 to $60 billion last year.

While the United States is unlikely to be dislodged as the Saudis prime strategic partner, there has been a pivot in a number of commercial sectors towards China, which has older ties with the region extending back to the days of the Silk Road. Some three-and-a-half centuries before the United States was even founded, Chinese admiral Zheng He visited the Prophet Muhammad’s tomb in Medina as part of the final voyage of a series of epic explorations in the early fifteenth century.

Baosteel may feel that it has taken almost as long to get its own internationalisation strategy off the ground. The steel giant has been talking about supporting the Belt and Road Initiative (BRI) ever since President Xi Jinping announced the plan to deliver a new Silk Road across Asia and the Middle East in 2013. If the Saudi Arabian plant proceeds, it will be Baosteel’s first international project. It may also help to create new revenue streams at a time when the Chinese government is making a concerted effort to cut domestic steel production as a means of meeting emissions targets.

Baosteel says that it still plans to grow its operational capacity in overseas markets and delivering on the Saudi deal would mark another landmark achievement for the company. Last December, Baosteel chairman Chen Derong burst into tears on announcing that its record 100 million tonnes production had seen his firm surpass ArcelorMittal as the world’s biggest steel producer for the first time.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.