It seems that the demands of China and some Western officials to find an alternative to the dollar in the G20 meetings following the 2008 global financial crisis paved the way for China to have a strategy that would avoid continuing to remain under the cloak of dependence on America, and to get rid of its role as a mere “factory of the world.”
More than once, China suffered financial losses due to the changes in America’s financial and monetary policies, because China had a large balance in US Treasury bonds, as well as its financial portfolios in global and US markets.
It is worth noting that China’s holdings in US Treasury bonds have declined for about 3 years, to be in second place after Japan, after having been in first place for years.
Last May, US Treasury Department data showed that China reduced the value of its investments in US Treasury bonds to $767.4 billion, the lowest figure in the past 15 years. China’s share before that exceeded $1 trillion.
Since then, China has been slowly moving towards using local currencies as a medium of exchange in its foreign trade with neighboring countries. However, the qualitative shift for China in the global monetary system came with the International Monetary Fund’s adoption of the Chinese currency, the “yuan,” as part of the official monetary reserves of countries.
Petroyuan
Yes, the yuan is still moving slowly in the global financial and monetary system, but for it to be one of the currencies for pricing oil, or for oil trades to be conducted in a currency other than the dollar, we are facing a scene that has its significance in terms of the signs of a multipolar global economic and monetary system.
Several months ago, an American newspaper reported that Saudi Arabia was studying the possibility of selling some oil deals to China in yuan. Not long after, Saudi Minister of Industry and Mineral Resources Bandar Alkhorayef stated that “the Saudi authorities are open to implementing new economic tools, including the use of the ‘petroyuan’ in mutual settlements.”
In the context of the American election campaigns of the presidential candidates there, the search for an alternative to the dollar in international settlements was not absent, but the media quoted the presidential candidate and former president, Donald Trump, that his policy would be to punish countries that abandon the dollar, and that he would impose customs taxes of 100% on countries that replace other currencies with the dollar in their transactions.
It is worth noting that in 2018, Trump had ignited a trade war against China and some other countries, and disrupted global trade, and it is not unlikely that he will implement what he promised. During his term in power in America, which ended in early 2021, he implemented everything he promised in his election campaign, and the most prominent of these pledges was America’s abandonment of funding for many international organizations.
But China’s relationship with Saudi Arabia in particular, and with the Gulf states in general, is growing, and negotiations have recently taken place regarding the establishment of a free trade zone between China and the Gulf states, and although the results showed the failure of those negotiations, the matter remains in place, and it is expected to be addressed in the coming periods.
Economic and trade relations
Economic relations between Saudi Arabia and China have developed significantly over the past period, as China has become the first trading partner with Saudi Arabia over the past decade, and according to the figures published in the Saudi Central Bank report for the year 2023, China tops the list of the top 5 countries in terms of exports and imports for Saudi Arabia.
The figures for 2022 indicate that Saudi exports to China amounted to 249.9 billion Saudi riyals ($66.64 billion), while Saudi imports from China amounted to 149.2 billion Saudi riyals ($39.7 billion), meaning that the total trade exchange between the two countries in that year amounted to about 106.3 billion dollars, achieving a trade surplus in favor of Saudi Arabia of about 26.9 billion dollars.
According to a recent study by the Abha Chamber in Saudi Arabia, entitled “Saudi-Chinese Economic and Investment Relations” and issued in May 2024, Saudi direct investments in China amounted to $2.2 billion, while Chinese direct investments in Saudi Arabia amounted to $7.7 billion.
The same study reported that the value of trade exchange between the two countries in 1995 was around $913 million. As for the most important Saudi exports to China according to 2022 data, fuel came in first with 85% of Saudi exports to China, while the remaining exports of organic chemicals, copper and its products, rubber and its products, fish and crustaceans represented 15%.
It is worth noting that Saudi exports to China represent only 2.2% of total Chinese imports, which exceed $2 trillion, according to 2022 data.
As for Saudi imports from China, machinery, appliances and electrical equipment represented 23.6%, boilers, machinery and equipment represented 15.4%, and the rest of the imports included clothing, furniture, ships and boats.
Chinese strategy and multiple paths
China’s strategy regarding its presence on the global economic map does not know the concentration in financial and economic transactions, but rather extends its arms in different directions.
While it maintains its financial and trade relations with America and the West, despite the economic war between them, it is interested in the Gulf countries, as well as in strengthening the effectiveness of the BRICS group, and it has good dealings with Russia and Iran, the two countries that have bad relations with America and the West, due to the economic sanctions imposed on them.
However, the important feature of China’s relationship with Russia and Iran is related to the activation of the Chinese yuan in the financial transactions of Russia and Iran, as well as the settlement of China’s commercial transactions in large part in the local currencies of Russia and Iran.
Oil is the main commodity that China imports from both Russia and Iran. The Abha Chamber study indicates that the top 5 oil exporting countries to China are (Russia $85.3 billion, 15.9%; Saudi Arabia $56.6 billion, 10.5%; UAE $39.8 billion, 7.4%; Iraq $39.3 billion, 7.4%; and Malaysia $38.9 billion, 7.3%).
As for Iran, due to the sanctions imposed by the US and the West, Iranian oil is exported to China unofficially, despite China’s announcement that it rejects unilateral sanctions. Iranian oil is exported to China under Emirati, Malaysian or Omani banners, but Reuters, quoted by media outlets, reported that China is the largest importer of smuggled Iranian oil outside the scope of sanctions.
Sino-Russian trade relations have witnessed a significant increase, reaching about $240 billion by the end of 2022, including Russian exports of about $129.1 billion, while Russian imports from China amounted to $110.9 billion, and the trade surplus is in Russia’s favor, due to its fuel exports to China.
World order and petroyuan
Steps towards a multipolar economic system are moving slowly, but they are witnessing new developments. The Saudi minister’s statements were not the only ones in the context of studying the petroyuan, but there were statements issued by the head of the Russian Federation Council, Valentina Matviyenko, in early August, expressing her hope that the BRICS group would announce during its summit scheduled in Russia next October the date for launching a unified financial transfer system to replace the SWIFT system.
It is natural for America and the West to oppose any change in the mechanisms of the monetary system, as it enables them to control the joints of the global economy through the control of their currencies. The dollar still covers 59% of official foreign exchange reserves, the euro 20%, and the remaining six major currencies cover about 20%, and the Chinese yuan currently does not reach 3% of official foreign exchange reserves.
But reality and the calculation of interests are what will shape the future, and this will be aided by the political maps, which are also witnessing similar changes and heralding the birth of a multipolar world order.
If we look at China’s adoption of a strategy to change the structure of the global system and work to have an effective role in the expected global system, we find that it is proceeding quietly but achieving success. After adopting its currency in the official foreign exchange reserves basket of countries, it moved to launch the “Infrastructure Bank”, then increasing the effectiveness of the “BRICS” group, and expanding the scope of dealings in the yuan and exchange in local currencies in inter-trade.
America and the West always circumvent the experiences of self-reliance, or the attempt to participate in managing the global system, and they have used all tools and means to achieve this, including military, political, or economic pressures, but will these attempts succeed this time with China?
It will depend on how other parties interact with the Chinese experience and move towards the petroyuan.
