A surge in Saudi Arabia's oil supplies to China boosted their two-way trade above the official target of SAR150 billion (Dh147bn) last year and the relationship is poised for further expansion, according to a key Saudi bank.

From a negligible level two decades ago, Saudi Arabia's exports to China jumped to nearly SAR116bn in 2008 while its imports from the most populous nation on earth peaked at more than SAR40bn. The surge, which was coupled with similar political moves, tempted Chinese President Hu Jintao to announce in 2006 that bilateral trade between the two countries should reach SAR150bn by 2010.

"It seems that this was already achieved by 2008, as we estimate that Saudi Arabia's exports to China reached SAR 116.25bn and imports from that country peaked at SAR40.13bn," the Saudi British Bank (Saab) said in a study about Saudi Arabia's growing ties with China. "Also in 2008, the Saudi trade surplus jumped by nearly180 per cent due to the rise in oil prices, as well as an increase in oil export volumes as the kingdom exported to China the equivalent of 720,000 bpd."

Citing official estimates, Saab said Saudi exports to China were negligible for most of the 1980s. Up until 1994, the kingdom exported SAR451 million worth of goods to China, but a noticeable increase was observed in 1997 when exports jumped to SAR1.58bn, and again in 1999 when they reached SAR2.35bn.

The study attributed the steady rise to the fact that China had become a net importer of oil since 1993, adding that a dramatic leap in Saudi exports occurred in 2000 when the year-on-year figure shot up by 139 per cent to SAR 5.63bn. From that year onwards, Saudi exports to China continued to rise on an annual basis.

It showed that in 2001 exports reached SAR8.15bn and by 2008 exports had rocketed to a record high of SAR116.25bn.

"The rise in Saudi Arabia's oil exports was spurred by the growing energy demand in China that outstripped domestic supply. Between 2000 and 2005 China's oil consumption increased from 4.7 million bpd to almost seven million bpd, nearly 43 per cent of which was derived from imports," it said.

"China is the world's second-largest net importer of oil behind the US, having surpassed Japan in 2008. Within the energy sector, in contrast to a decade ago, China today is importing massive quantities of oil and, following the modification and augmentation of its refining capacity, is able to absorb increasing amounts of Saudi heavy crude. This has catapulted Saudi Arabia into the position of China's leading foreign source of oil, while at the same time making China the kingdom's leading crude oil customer."

Saab said Angola had been the largest oil supplier to China before it was overtaken by Saudi Arabia in 2007, when the kingdom's crude exports peaked at 527,000 bpd. In 2008 sales climbed to 720,000 bpd in line with Saudi Aramco's agreement in June to increase crude supply to China's Sinopec company to 1.5 million bpd by 2015, the report said.

It noted that the current export volume was achieved due to what it described as China's acknowledgment that access to Saudi crude was vital for its growth, while for the kingdom it became evident that its heavier crude could only be refined if either China or Saudi Arabia increased domestic refining capacity of heavier crude.

The kingdom's target for increasing value-added refined products for China is based on two major refinery projects – the 200,000 bpd Qingdao and 240,000 bpd Quanzhou, the report said.

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