* Tens of billions of dollars of deals signed in China,
* Advances Saudi's effort to build non-oil economy
* But many deals may not become concrete projects
* Many in oil, petrochemicals rather than new industries
* Heavy spending on foreign investment while finances
By Katie Paul and Andrew Torchia
RIYADH/DUBAI, March 22 A tour of Asia by Saudi
Arabia's King Salman this month has advanced the kingdom's drive
to attract foreign investment and diversify its economy beyond
oil exports, but the strategy comes with an expensive price tag.
In China, the Saudi king oversaw the signing of deals worth
as much as $65 billion in industries including light
manufacturing and electronics, as both sides played up a Saudi
role in China's One Belt, One Road strategy to integrate
A string of deals in Japan included an undertaking by Toyota
Motor Corp to study the possibility of making vehicles
in Saudi Arabia.
That was good news for Riyadh's effort to build a modern,
industrial economy which it hopes will create millions of jobs
and allow it to cope with an era of cheap oil.
But despite much fanfare, the tour saw few concrete plans
for foreign investment in the kingdom's non-oil sectors, even at
the non-binding memorandum of understanding (MoU) level.
Most of the big deals were in refining and petrochemicals,
not the new industries Riyadh hopes to develop through its
Vision 2030 economic reform programme.
And as with investments by its top sovereign wealth fund,
the Public Investment Fund (PIF), many proposed projects are
located outside Saudi Arabia and would require Riyadh itself to
stump up billions of dollars as investment capital.
State oil giant Aramco made a $7 billion investment in a
venture with Malaysia's state oil company Petronas, and signed
an MoU to look into building refining and petrochemical plants
Such moves cement the kingdom's position as Asia's chief oil
supplier, but could also siphon badly needed funds away from
The Saudi government is struggling to rein in a $79 billion
budget deficit and is drawing down overseas reserves to resist
pressure on the riyal currency's peg to the U.S. dollar.
Steffen Hertog, an economist at the London School of
Economics who studies the kingdom, said it made sense for Saudi
Arabia to look to Asia for investment and business opportunities
given growth in the region's demand for energy and
But he said Riyadh faced harsh competition as it tried to
move into new industrial areas, and that it was not entirely
clear how the kingdom could fit into Asian economies beyond
providing energy and petrochemical feedstock.
"Saudi Arabia currently is running down its overseas
reserves at a fairly fast clip. If it ties up significant funds
in illiquid investments, this will shorten the shelf-life of its
peg to the U.S. dollar, the defense of which requires
large-scale liquid foreign assets," said Hertog.
"There is a clear trade-off there that the current
investment strategy does not seem to take into account."
Saudi Arabia is hoping tie-ups with big Chinese and Japanese
conglomerates will give it access to capital, markets and
technology. Petrochemical giant Saudi Basic Industries
, for example, signed a deal with China's Sinopec to
study opportunities for joint projects in both countries.
Riyadh is pursuing a similar tack in the United States,
discussing would-be partnerships worth some $200 billion during
a simultaneous visit to Washington by King Salman's son.
Among its foreign investments, the PIF has pumped $3.5
billion into U.S. ride-sharing firm Uber and pledged up to $45
billion for a new technology investment fund with Japan's
Joint ventures may not be enough to attract many foreign
firms into Saudi Arabia, however. Companies regularly cite red
tape, a crude legal system and rising costs as hazards of doing
business, and now face new taxes and policies to make hiring
foreign workers more expensive.
Inward investment has dropped in recent years. Foreign
direct investment in Saudi Arabia peaked above 15 percent of
non-oil gross domestic product in 2008 but sank to about 3
percent in 2015, according to the International Monetary Fund.
Jizan Economic City, which was supposed to be filled with
Chinese heavy industry, had to be rescued by Aramco after plans
for ventures with foreign companies were scrapped in 2013.
A proposed Jaguar Land Rover factory, which was to sit next
to the world's biggest aluminium smelter at Ras al-Khair, never
If Riyadh offers foreign investors quid pro quos to attract
their investment, net financial inflows into Saudi Arabia may be
small, said James Reeve, deputy chief economist at Saudi
Arabia's Samba Financial Group in London
But he argued the strategy made sense because a key goal was
to attract not just money but technology needed to upgrade the
economy. "If they have to 'pay' to get it, so to speak, then so
(Editing by Hugh Lawson)