Back
THE PANGOAL REPORT
Apr 17, 2019
A Study of China-Italy Cooperation in BRI
A Study of China-Italy Cooperation in BRI

Hua Jing, Senior Fellow, Deputy Secretary-General of Academic Committee,

the Pangoal Institution

Anurag Ram Chandran, A Schwarzman Scholar

at Tsinghua University



In ancient times, Europe and Asia were connected together by the Silk Road, with Rome and China respectively serving as the two major terminals. The Silk Road was viewed as the main line of trade and business across borders at that time--an early version of economic globalization. In fact, the grand history of the Silk Road and the connection and exchanges between the two countries are well documented by Marco Polo in his Travelogue. Upholding the concept of globalization, China proposed the Belt and Road Initiative (BRI)in which Italy matters a lot. Relatively speaking, among all the countries in the Western Europe, the government and business community in Italy holds a positive stand towards BRI. Even though, it is still undeniable that there is still skepticism and doubt in carrying out relevant projects. Whether we can succeed in exploring more areas and spaces for cooperation and making full advantage of the complementarities between China and Italy, will affect not only the future development of the two countries but also the implementation of the BRI all across Europe.


1. Why does Italy matter in BRI?

The significance Italy enjoys in the implementation of the BRI include several aspects, including geographic, economic and political facets.


Geographically, BRI includes both the land and the maritime Silk Roads. Italy stands at the intersection of the two roads, making it uniquely special in BRI. What’s more important, however, is the huge potential of the cooperation between China and Europe in the framework of BRI and Italy’s special position in Europe.


From the perspective of the economy, the European Union needs to further improve the process of European integration, while China strengthens the interaction between regional economy and global economy by means of BRI. Both sides have strong consensus for regional and global economic integration, which is the core premise of cooperation between the two sides. Besides, China and Europe have mutually complementary economic structures-- China has advantages in labor-intensive manufacturing industries, while Europe has global competitiveness in the field of consumption upgrades. Similarly, China has superiority in infrastructure construction, while Europe has advantages on the software services of infrastructure. This complementarity is the core factor that will promote cooperation between the two parties. Through the land and sea route, the distance between China and Western Europe will be greatly shortened, which will significantly reduce the trading costs. This not only benefits China, but also has important significance to Europe. Broadly speaking, the Belt and Road (BRI) is an initiative that aims to achieve a win-win goal. Of course, China will benefit from it-- but this is based on mutual benefits and the parallel benefits for the relevant countries involved.


It is also important to note that trends of anti-globalization and populism are spreading all over the world, becoming more intense as time goes by. This is one of the primary reasons that led to the UK’s decision to exit Europe, the repercussions of which, may also have an impact on the series of elections that are going to be held in several European countries this year. In this situation, if China and European economies can develop much closer economic relations, more enterprises and people can benefit from transnational trading. Undoubtedly, it will play a significant role in opposing the protectionist trends in Europe, and more broadly, throughout the world.


Italy enjoys a distinctive geopolitical advantage in being the gateway for Chinese products to find markets in Europe. Based on statistics provided by IMF’s World Economic Outlook Database, October 2016, Italy is the fourth largest economy in EU and the eighth in the world


. In the past 47 years after the establishment of diplomatic relations between China and Italy in 1970, bilateral relations have experienced powerful acceleration. Today, Italy is China’s fifth largest trade partner in Europe, while China is Italy’s largest one in Asia. The annual bilateral trade volume amounts to $ 43.06 billion in 2016, in which China exported 26.36 billion and imported 16.70 billion. By the end of 2016, the investment projects in China initiated by Italy totaled 5617, with $ 6.89 billion of actual fund. Italy, on the other hand, has become a main destination for Chinese investment.


It is of no doubt that Italy’s economy has been facing several challenges after the occurrence of the financial crisis. As the comprehensive economic resurgence cannot be achieved solely on exchanges within the European market, it will be important for Italy to enhance cooperation with Asian countries, especially with China. BRI, therefore, will provide unprecedented opportunities for China and Italy, the two ancient civilizations, to cooperate and develop together.


2. How Italy reacts to BRI?


On a recent visit to China, Italian President Sergio Matarella stressed his country’s desire to collaborate with China on BRI—a growing sign of the positive reception of BRI in the upper echelons of the Italian government. In fact, Mr. Matarella is confirmed to attend the Belt and Road summit between May 14 and 15.


It is important to note that not much information abounds in Italian media about BRI or the possibility of Italian and Chinese cooperation on BRI-led projects. This leads to a lot of the general public, and civilians largely being unaware of BRI. However, the business community in Italy is largely enthusiastic, as they are slated to be the biggest winners from the likely BRI-led projects, and as such, are the strongest lobbying forces in the Italian government. The business community in Italy has openly embraced the arrival of Chinese investments and takeovers, and have largely contributed to the increased positive government perception of China in Italy.


The buying of Pirelli, Italy’s top tire maker, by China National Chemical Corporation (ChemChina)for US$ 7.7 billion is the most recent example of China’s interest in Italian companies. This deal, was in fact partly funded by the Silk Road Fund, which took an equity stake in the division of ChemChina created to buy the shares. Other large investments by Chinese firms in Italy include the $2.8 billion investment in Italian energy grid unit CDP Reti by the State Grid Corporation of China (SGCC) in 2014 as well as other large-scale investments that have only grown in number every year. The number of increased investments and acquisitions clearly show the openness of businesses and business leaders in Italy to China. This is good, especially in a country like Italy in which the majority of the people believe that strong and influential businesses have a positive impact on the economy, and are comfortable with the influence of corporations on the government—according to a survey conducted by CNBC and Burson Marsteller. Thus, winning over the business community is crucial for China to steer Italian policy-making in a pro-BRI direction, and it already seems to be ahead of the curve in this task.


In addition to the business communities, it appears that the government leadership is especially supportive of embracing BRI-related projects. This is partly due to the strong relationship that Italy enjoys with China. For instance, Italy is one of the founding members of the Asian Infrastructure Investment Bank (AIIB), deciding to join after ignoring US pleas to refrain from joining. Further, after meeting in Rome in May 2016, China’s Foreign Minister Wang Yi and Italy’s Prime Minister Paolo Gentiloni (back then, Italy’s Minister of Foreign Affairs) announced several areas of cooperation between China and Italy. These included five priority fields—energy conservation and environmental protection, agriculture, sustainable urbanization, healthcare, aviation and aerospace. There were also talks on aligning BRI with Italy’s national development strategies. The previously mentioned visit of Italian President Matarella and his confirmation of visit to the BRI summit is just the latest sign that the Italian government and its leaders are positively receptive to BRI-related projects in their country.


3. What are the main concerns about BRI in Italy?


One of the concerns often faced by China in its outbound investments and acquisitions drive is the perception of its State Owned Enterprises (SOE) abroad. In many European countries, including Italy, the general public remains apprehensive of foreign companies buying domestic companies. A Pew Research Center study in 2014 found that 73% of the Italian populace surveyed believed that foreign companies’ acquisition of domestic companies is bad. While this sentiment applies to all such acquisitions, it is bound to be strongest against Chinese SOEs that have recently gone on a buying spree and acquired some of the most historic and most recognizable Italian companies like Pirelli. Naturally, this creates resentment and distrust of Chinese SOEs and affects their operational capabilities in the host countries. Further, in the same survey, Italians appeared to be one of the most suspicious of trade and only 13% of those surveyed believed that trade with other countries leads to more jobs, while over 59% believed that it led to job losses. In addition, 52% Italians believed that trade reduced wages and was not beneficial to the country as a result.


Broadly speaking, European governments, including Italy, have three major concerns about Chinese investments and acquisitions in their countries:


Investments resulting in China’s control of assets of key and strategic industries. These generally include organizations and companies considered to be important for a country’s economic growth and global competitiveness, especially high technology/technologically advanced companies. This concern has led to the establishment of protectionist policies in several countries. In Germany, the country that has enjoyed a strong trade surplus with China over the last 5 years, the government recently withdrew its approval for a

Topics
Get daily updates from Pangoal
BACK TO THE TOP