Riyadh (AFP) - Chinese President Xi Jinping and Saudi King Salman on Wednesday inaugurated a joint-venture refinery, symbolising Beijing's deepening involvement in the Middle East and Riyadh's need for economic diversification.

The event took place in the Saudi capital on the second day of Xi's first visit to the region. He later left for Cairo and will also travel to Saudi Arabia's rival Iran.

The YASREF refinery, in Yanbu Industrial City on the Red Sea, is 62.5-percent held by Saudi oil giant Aramco, while China Petroleum & Chemical Corp (Sinopec) holds the balance.

"YASREF represents both companies' focus on driving downstream growth," the refinery said in a statement.

Billboards on a highway outside the ceremony showed Xi and Salman waving against a backdrop of the refinery.

Saudi Arabia is China's biggest global supplier of crude, and state-owned Saudi Aramco says expansion into refining and chemicals fits the kingdom's goal of economic diversification.

The policy has been given added urgency by a plunge in the kingdom's oil revenues.

YASREF is one of five joint-venture refineries in Saudi Arabia. Another four are overseas, including one in Fujian, China.

The YASREF refinery shipped its first diesel one year ago and has a capacity to refine 400,000 barrels of Arabian crude per day.

Saudi Aramco and Sinopec also signed a framework agreement on cooperation, reflecting confidence "in the potential opportunities we can create together," said Saudi Aramco president Amin Nasser.

- Growing trade -

Sinopec's strengths in refinery and chemical technology would support the kingdom's drive to diversify its petroleum sector, said the company's chairman Wang Yupu.

The ceremony, accompanied by a Chinese dragon and Arabian sword-dancing, took place in Riyadh at the King Abdullah Petroleum Studies and Research Center (KAPSARC).

Salman separately inaugurated that facility, which focuses on energy research and policy.

Oil Minister Ali al-Naimi, who chairs KAPSARC's board of trustees, told the gathering the centre would "contribute to the diversification and expansion of the Saudi economy".

Salman in December said he had ordered economic reforms to diversify sources of income and reduce the kingdom's high dependence on oil.

Global crude prices have collapsed from above $100 a barrel in early 2014 to below $28 on Wednesday.

To cope with a record budget deficit, the kingdom broke with its decades-old generous welfare system and raised fuel, electricity and other prices in its 2016 budget.

Government spending has also been cut, there is talk of a value-added tax in the tax-free nation, and state assets including Saudi Aramco could be privatised.

Trade between the Gulf nations and China, the world's second-largest economy, has been growing.

Two-way commerce between China and Saudi Arabia alone reached $69.1 billion in 2014, according to China's official Xinhua news agency.

Although China depends on the Middle East for its oil supplies, it has long taken a low-profile approach to the region's diplomatic and other disputes, only recently beginning to expand its role, especially in the Syrian crisis.

Before Xi's visit, a Chinese analyst said Beijing would do what it could to ease heightened tensions between Saudi Arabia, the region's main Sunni power, and its Shiite rival Iran.

Later, Xi was welcomed at Cairo airport by his Egyptian counterpart Abdel Fattah al-Sisi, with whom he will hold bilateral talks that focus on the economic sector.

Bilateral trade between China and Egypt amounted to $11 billion in 2014, the bulk of it being Chinese exports to the biggest Sunni Arab country, state-run Al-Ahram newspaper reported.

On Thursday, Xi is to visit Egypt's newly convened parliament, and will address a session of the Cairo-based Arab League.