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

Aramco's latest deals in the Chinese market are fueling speculation that the Saudi giant could be set to list one of its subsidiary companies on the Hong Kong Stock Exchange (HKSE).
 A man looks at the exchange board at the Stock Exchange Market (Tadawul) bourse in Riyadh displaying Aramco shares on the second day of their trading on December 12, 2019.

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 a 10% acquisition of oil refining firm 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 country’s northeast.

These deals may help to fuel speculation that Aramco could be set to list one of its subsidiary companies on the Hong Kong Stock Exchange (HKSE). On a recent trip to the Gulf, Hong Kong’s 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 Promotion and Protection Agreement. He outlined how “the agreement will further promote bilateral investment flows and strengthen the confidence of investors from both sides.” This included Aramco potentially listing on the HKSE.

The move is another sign of the increased diplomatic and economic engagement between China and the Gulf as relations with Washington become more strained. Saudi Arabia in particular has clashed with the United States in recent months, with President Biden — who once pledged to make Mohammed bin Salman a global “pariah” — condemning the kingdom’s decision to restrict oil supplies. The flurry of deals between Saudi Arabia’s largest company and major Chinese firms suggests that Beijing is trying to take geopolitical advantage of these dynamics.

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

“With respect to the bolstering of Sino-Saudi Arabian ties, China is seeking to co-opt more states within its orbit as part of Beijing’s alternative vision of international order to rival that established by the US. Just this week, Saudi Arabia approved a memorandum allowing the state to be a dialogue partner in the Shanghai Cooperation Organisation, which involves India, Pakistan and Russia, as well as several Central Asian states,” Howell said. “China thus seems intent on coercing allies of the United States, including those in the Gulf, to rethink this relationship despite ongoing US pledges of Washington’s security commitment to the region.”

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

Geopolitics aside, an Aramco listing on the HKSE would also seem to make economic sense for both countries. While Aramco listed on the Tadawul Stock Exchange in 2019 in a record-breaking IPO that raised a historic $25.6 billion, MBS had initially wanted to list the company in an international financial capital such as New York. This did not come to pass because of concerns the company was not sufficiently transparent to meet the disclosure requirements for publicly traded companies in the United States.

Although Hong Kong has undoubtedly declined as a financial hub after three long years of COVID-induced isolation, with Singapore now widely considered to be Asia’s primary financial center, the city still holds considerable prestige on international markets. Aramco listing in Hong Kong would help to re-emphasize Saudi Arabia’s credentials as an economic power of international importance.

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

“Hong Kong’s new leader, John Lee, is now eager to re-establish Hong Kong’s reputation as a premier financial center after lifting the highly restrictive COVID measures that caused an exodus of foreign firms and its domestic residents over the last couple of years,” Woo told Al-Monitor. “In this context, listing such a giant company like Aramco in Hong Kong would be a wonderful showcase to signal that Hong Kong is back in business.”

There are several layers to Aramco’s potential listing in Hong Kong and the increased engagement between Riyadh and Beijing. China is Aramco’s largest market, and it is therefore unsurprising that the company should seek to further its presence in the country. A mega-listing would be beneficial for Hong Kong as well after several years of economic contraction and international decline. However, the move undoubtedly takes on larger significance in the context of shifting geopolitical trends in the region.

“The potential Aramco listing in Hong Kong can be viewed as another concrete step toward strengthening ties between Saudi Arabia and China,” Woo said. “This is happening at a time when the US appears to be disengaging from the Gulf, and China wants to expand its influence there.”

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