Ciao from Rome, where Chinese President Xi Jinping has kicked off the first leg of his European tour.
The three-nation visit includes France and Monaco,
but it’s really his stop here in Italy that has people talking the most.
Why?
This moment here.
The signing of a memorandum of understanding, or MOU,
that will deepen Italy and China’s economic ties.
President Xi’s visit to Rome saw a total of 29 deals signed,
focusing on everything from agriculture and finance, to energy and engineering.
Combined, they’re worth $2.8 billion.
So what brings China to Europe? And why is Italy, a member of the NATO alliance
and the third largest country in the Eurozone, so receptive?
In 2013, China announced its Belt and Road Initiative, an ambitious plan that aims to strengthen
infrastructure and trade links between China and an estimated 65 other countries across 3 continents.
It links the western tip of Europe to North Africa and the Gulf countries,
and continues all the way through to South East Asia and onto the east coast of China.
Gaining both sea and land access to Europe is an essential part of the initiative.
In 2016, debt-ridden Greece sold a 51% stake of its largest seaport, Piraeus Port,
to China’s state-owned COSCO Shipping. The $313 million sale was a part of Greece’s
privatization process and came at a time of deep economic distress.
This was a first point of entry into Europe for China, and a Mediterranean base.
Italy has now emerged as another European economic partner,
but crucially it is the first G7 industrialized nation to officially endorse China’s Belt and Road Initiative
and has shown a willingness to open up its ports as well.
History buffs will note the remarkable similarities between
the key locations on China’s new Belt and Road Initiative
and Italian Marco Polo’s route to and from China in the 1200s.
Both routes pass through the Adriatic Sea, which is where the Port of Trieste is located.
It is one of the ports mentioned in the MOU. In fact, Belt and Road in Italian is commonly referred to
as Via Della Seta, which literally translates to “The Silk Road.”
Now this is all coming at a very interesting time for Italy economically-speaking as well.
2018 was a year that saw the country underperform versus other Eurozone countries.
Italy’s general election in March didn’t have a clear winner,
but it did have losers from the more established parties,
like Matteo Renzi’s Democratic Party and Silvio Berlusconi’s Forza Italia party.
A few months later Italy’s new government was sworn in,
a coalition of the Eurosceptic Lega party and the anti-establishment Five Star Movement.
The new government’s initial budget increased deficit spending,
essentially using more money than it was getting.
Markets did not like that. It led to sharp decline in Italian assets,
and trading in bank stocks even had to be temporarily stopped.
You see, Italy has one of the highest debt to GDP ratios in the world.
Its outstanding debt is now at more than $2.5 trillion,
much more than its GDP of $1.9 trillion, which still hasn’t fully recovered since the financial crisis.
Foreign investors are also putting less money into Italy.
After investors put a record $77 billion into Italy in 2008
foreign direct investment took a tumble in 2009, and hasn't really recovered since.
Italy sees inking a deal with Beijing as one way of attracting new investments into the country.
And trade is an area that could have good potential too. Italian exports to China in 2018 only tallied up
to about $15.5 billion, paling in comparison to Germany and the U.K.
Italy is technically in a recession.
The hope of course is that inking deals like this will help boost productivity and growth.
But not everyone is happy with this new found alliance.
The EU are sceptical of the Belt and Road initiative not least because they view it as a means of China
advancing their military and diplomatic clout within the continent.
It’s also coming at a time where the relationship between Brussels and Rome
is quite frayed on the back of Italy’s public spending plans,
as well as their hard-line stance toward immigration.
And in the U.S., the National Security Council account warned:
“Endorsing BRI lends legitimacy to China’s predatory approach to investment
and will bring no benefits to the Italian people.”
The White House has also labelled it as a ‘vanity’ project.
While Prime Minister Conte has defended the deal with China, the question becomes:
Is Italy open for business? Or is it up for sale?