Economics

Italy is joining the Belt and Road Initiative

March 29 2019

On March 23rd, Italy formally joined China’s Belt and Road Initiative (BRI) upon Xi Jinping’s visit to Rome. Italy being the first G7 member joining this initiative, certainly has political significance to China. Italy's motivation is straight forward, to obtain better access to the Chinese market and to boost its underperformed economy in recent years.

According to an earlier speech by Giovanni Tria, Minister of Economy and Finances, Italy would like to engage in the BRI via three pillars, participating in the infrastructure projects, enhancing Italian ports capacity and exporting Italian products to the emerging markets along the BRI.

What attracts Chinese investment most probably is the second pillar, Italian ports, which provides China with exceptional connections with European continent and Mediterranean. According to the Joint Communique, China is hoping to connect the BRI with the TEN-T to reach an extensive transportation network. Currently, the top three Italian ports handling shipment with China are La Spezia (1st), Trieste (2nd) and Genova (3rd) (figure 1), which are close to the industrial area in the northern Italy.

Among the three, Trieste Port worthies most attention. On March 23rd, Trieste and Chinese Communication Construction Company (CCCC) has reached cooperation agreement to improve the port facilities and railway connections to Trieste. Located in Northeastern Italy, Trieste is a gateway to the Mediterranean and has excellent railway connections with Budapest, Munich and Zeebrugge, which has been acquired by COSCO in 2018. Together with the Budapest-Belgrade-Piraeus railway currently under Chinese construction, it provides China an extensive shipping network to Europe. Since 2017, Trieste has experienced a rapid increase in transporting goods to/from China. In the second quarter of 2018, it reached a record high of the total volume of 580, 000 tons of shipment with China.

Across the Adriatic is Venice, where Chinese investment has also shown great interest. A MoU has been signed this February between Venice and Piraeus Port, operated by COSCO to smoothen the Mediterranean shipping connection. 18 km away from Venice is current under construction Chinese terminal project in Malamocco, which will enable to handle large cargos holding 18,000 to 22,000 TEUs. This potential hub allows to link with the Chinese Port project in Cherchell, 60 km west of the capital Algiers, to connect with North Africa and Sub Saharan areas through Lekki port in Lagos to complete a global shipping network.

Genoa is also where Chinese money flows to. In 2016, China acquired 50% of reefer terminal of Vado Port in Genoa, which benefits the food and medical products trade between Italy and China. Despite the high volatility, Genoa is facing an overall decrease of shipment connecting with China. This situation may get reversed along with the cooperation agreement with CCCC.

Italy also seeks potential Chinese investment on ports in Southern Italy, such as Palermo in Sicilia, where Chinese money has already been for several years. Michele Geraci, the undersecretary of the Ministry of Economic Development, suggests that Palermo can serve as a connecting dot to the Africa. This is linked with the first pillar, the infrastructure building, where Italy has shown interest for joint cooperation with China in Africa.

Seeking to Improve the port capacities and to jointly develop Africa all come down to serve for the third pillar, boosting the trade. Currently, over 2/3 of Italy's trade is taken place within the EU. China is only the 7th biggest trading partner of Italy. Machinery equipment, chemical products, and textile are the top three export goods from Italy to China. As the manufacturing sectors are heavily condensed in northern Italy, the improved capacity of northern ports contributes to a more efficient logistics for trading these goods. Food and agricultural machinery will be what Italy tries to seek a bigger Chinese market. Taking wine as an example, albeit Italy is the world’s second largest wine producer, export of wine to China was only one seventh of export from France in 2018. Since January 2019, a railway express connecting Chengdu and Milan starts to operate, which will contribute to the export of food and wine from Italy.

Of course, here comes with the question: will all the optimized shipping connections mean a broader Italian market or European market for China or a bigger Chinese market for Italy? It seems there is no consensus within Rome. If we look at Piraeus, China’s flagship port investment in Europe, as an example the outward shipping to China accounts less than 30% of the total shipment of Piraeus with China in 2018.

A primary task ahead of Rome is to seek the balance among Brussel, Washington D.C and Beijing. On the one hand, the EU urged for a “whole-of-EU approach” to address issues like technology transfer and intellectual property rights. In the recently published EU-China strategic outlook, the EU labeled China as “an economic competitor in the pursuit of technological leadership, and a systemic rival promoting alternative models of governance”. On the other hand, the EU has long been concerned the Chinese investment in Eastern Europe, such as the 16+1, would divide the EU and trap countries in debt. Washington, similarly, questioned the necessity of Italy “lending the legitimacy” to China. While Italy has been trying to provide EU and the U.S the assurance. This, however, is certainly not easy.

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PhD in Political Science, Ganyi gives a sharp look at the evolutions of the global Supply Chain industry through the prism of the political and economic context.