Talks to cross-list stock markets are underway between China and Saudi Arabia

Saudi Arabia and China's leading stock-market operators are engaged in preliminary discussions regarding the potential cross-listing of their respective Exchange Traded Funds (ETFs). This initiative aims to enable investors in both countries to trade stocks or bonds on their respective stock exchanges. The talks, currently underway between the Shenzhen Stock Exchange and Tadawul Group, the Saudi stock exchange operator, could establish a significant financial linkage between the two nations. Some of China's major ETF operators have already been briefed on the possibility of a cross-listing agreement with Saudi Arabia in recent months.

Against a backdrop of strained relations between Saudi Arabia and the United States over energy policies and human rights issues, China has strengthened its geopolitical ties with the kingdom. In December, Chinese President Xi Jinping received a warm welcome in Saudi Arabia, where China plays a crucial role as the recipient of over a quarter of the kingdom's total crude exports. Additionally, China has supplied Riyadh with 5G technology and Huawei equipment, causing tensions with Washington. China's diplomatic influence was notably evident in March when it brokered a deal between Iran and Saudi Arabia to restore diplomatic relations, a move that reportedly caught the US off guard, leading to complaints from CIA director Bill Burns.

The growing political alignment between Saudi Arabia and China has coincided with a surge in economic activity. Saudi Arabia is a key participant in China's Belt and Road infrastructure initiative and ranks among the top three countries globally for Chinese construction projects. In June, the kingdom announced substantial investment deals with China at a prominent business conference in Riyadh, including a $5.6 billion memorandum of understanding with Human Horizons, a Chinese company specializing in electric and self-driving cars.

Should Beijing and Riyadh successfully negotiate the cross-listing of ETFs on each other's stock markets, it will be closely monitored by analysts and diplomats. Simultaneously, there are reports that Saudi Arabia is contemplating accepting the yuan instead of the dollar for its oil sales, a potential paradigm shift in the oil market where 80 percent of transactions are currently conducted in dollars. If implemented, this change could impact the greenback's status as the world's reserve currency.