a. The purchase of \(2 billion worth of crude oil from Saudi Arabia by SINOPEC will increase China's imports and reduce net exports, leading to a decrease in net exports. At the same time, the investment of \)1 billion by Saudi Arabia in buying stock of TENCENT will increase China’s capital inflows and increase net capital outflows. Therefore, the overall effect on China is a decrease in net exports and an increase in net capital outflows.
b. The sale of \(2 billion worth of crude oil to SINOPEC by ARAMCO will increase Saudi Arabia's exports and therefore, lead to an increase in net exports. The purchase of \)1 billion worth of weaponry products from China will reduce Saudi Arabia’s imports and lead to a decrease in net capital outflows. However, the investment of $1 billion in buying stock of TENCENT will lead to an increase in net capital outflows for Saudi Arabia. Therefore, the overall effect on Saudi Arabia is an increase in net exports and a mixed effect on net capital outflows depending on the magnitude of their investment in TENCENT stock.
