EconomyInternational Relations

Italy’s Embrace of the Belt and Road Initiative Could Be Beneficial to Europe

China’s new international assertiveness is one of the great talking points of the 21st Century, especially after the country’s adoption of the so-called Belt and Road initiative, a gargantuan infrastructure and investment plan. Resting on a generous treasure, the dragon is awake and roaring: this could remind readers of Tolkien’s all famous novel The Hobbit. Longing for their ancient home leads a little group of dwarves to deprive Smaug, powerful creature resting in the depths of Mount Erebor, of his sleep, prompting his sudden reawakening.

China’s reawakening might not have been as abrupt and disruptive as Smaug’s, but it has certainly contributed to the narrative shift we are witnessing today: the centre of economic gravity will soon lie elsewhere, in what a 16th-century explorer from the West would have naively called “the rest”. EU’s share of the world GDP (PPPs) will almost halve by 2050 and the European powers are destined to lose their position as top global economies (Pwc 2017); major Chinese cities can already boast GDPs comparable to those of entire European countries, while the Old Continent is set to become a demographic pigmy according to most scenarios (European Environment Agency 2016).

Belt and Road Initiative
Map of China

“Hide Your Strength, Bide Your Time”

The Dengist maxim “hide your strength, bide your time” was officially discarded in 2017, when China’s Paramount Leader Xi Jinping announced China’s grand entrance into the global geopolitical arena. Such participation had already begun when its markets silently opened to foreign investments, and the government promoted outward-looking policies such as Go Global/Go Out and Peaceful Rise. However, this new assertiveness has taken a bigger, forward-looking tone with the One Belt and One Road Initiative (OBOR) inaugurated in 2013.

The OBOR is more of a long-term vision than a clear project. The strategy entails a multitude of investments in infrastructures such as railways, pipelines, industrial parks, ports and highways along two main routes: the Silk Road Economic Belt and the 21st century Maritime Silk Road. OBOR involves more than 65 countries, the majority of which are in the Eurasian continent. Indeed, the Chinese government aims to develop the country’s western provinces further by bringing back the central role that the ancient Silk Road played in transcontinental commerce between Europe and the Far East; moreover, unstable countries in Central Asia and poor infrastructures along the maritime route to Europe curtail the potential economic gains that well-connected and economically prosperous countries could offer.

An Economic Uproar

The recent choice by the Italian government to sign a Memorandum of Understanding (MoU) concerning the Belt and Road Initiative (BRI) has shaken the West, with the EU’s budget Commissioner Oettinger even suggesting to confer the EU veto power over matters of such importance. The uproar comes amid parallel fears in different contexts, such as spying accusations involving the Chinese technology giant Huawei and disagreements at the WTO level, where China is constantly criticized for unfair practices like price dumping.

Researchers agree that Belt and Road could lead to great economic benefits, especially for those landlocked countries in Central and Eastern Europe (CEE) and the heavily indebted Southern member states. Overall, trade in the EU could increase by 6% (Garcia & Xu 2017). Moreover, the importance of the Mediterranean ports has steadily increased in the last years, with most of the traffic from the Suez Canal favouring them over the northern ports of Rotterdam and Hamburg (Prodi & Fardella 2017); Italy aims therefore to enhance the role of its ports (Genova, Venice and Trieste especially) as the fourth European economic power trails behind France, UK and Germany in imports and exports to and from China, and also lags behind in terms of investments and capital circulation.

Italy and the Euro
The Euro

The Belt and Road Initiative Between Wealth, Power and Politics

Despite assurances from President Xi Jinping that the strategy would only lead to economic prosperity, the EU is right to approach Belt and Road with caution: Chinese state-owned giants are privileged actors in this endeavour and their interests might not always overlap with the EU’s; transparency and project sustainability are also important issues that China has not sufficiently dealt with until now. Economic theory teaches us that trade and interdependence favour the well-being of consumers and create bonds that help prevent unwanted events such as wars. With wealth, nevertheless, power and politics come into the equation.

The EU is clearly divided on the issue: last week the French President Emmanuel Macron welcomed Xi Jinping together with Angela Merkel and EU’s Commission President Jean-Claude Juncker, seemingly signalling that a multilateral EU-wide framework is needed to gain the most benefits out of this challenge (or opportunity). Italy’s embrace of the BRI, the first G7 country to do so, could therefore push European member states to seek more unity, after the adherence to the MoU by other 11 member states (Croatia, Czech Republic, Hungary, Greece, Latvia, Luxembourg, Malta, Poland, Portugal, Romania and Slovakia) failed to attract the attention needed. Not coincidently, on March 12 the Commission issued a meaningful press release referring to China as both a negotiating partner and a “systemic rival promoting alternative models of governance”. It is quite a symbolic defeat to witness a systemic rival, embodied by the state-owned giant COSCO Shipping, owning 51% stakes in the Port Authority of Piraeus in Athens, the cradle of European democracy.

But it’s not too late. MoUs are non-binding cooperation frameworks and the agreements signed between Italy and China during Xi’s visit to Europe have limited economic impact and do not confer Chinese companies the ownership of vital infrastructures; more specifically, the arrangement concerning the ports of Genova and Trieste and the corporation China Communications Construction Company (CCCC) does not contemplate the acquisition of the ports’ authorities but rather aims to enhance connectivity to railway infrastructures. There is still time for the EU to find a more coherent approach and to take a leading role in the initiative: the EU represents the ending destination of all trade routes and has therefore leverage and say over the agreements taking place within its borders.

Intra-European competition, however, represents a major restraint to the stronger coordination needed at the EU level. Ports in the Northern Range (Antwerp, Rotterdam, Hamburg) also benefited from Chinese capital; the hostility coming from Northern member states over the cooperation agreements signed between the Chinese companies and the Italian ports might, therefore, be driven by fears that the economic significance of such ports would be downsized. Indeed, Professor Bart Kuipers, an expert on port economics from the University of Rotterdam, argues that the planned railway connections in Southern and Central Europe would reduce the container traffic in the Northern range ports by 1,6%. New interconnection projects could even increase such percentage.

COSCO Shipping has a 35% stake in the new generation terminal Etr Euromax Terminal Rotterdam, and 20% in the Antwerp Gateway terminal, while a Chinese consortium led by CCCC (which also includes Ali Baba founder Jack Ma) has been awarded the contract for the construction of a new automated terminal in the port of Hamburg in 2017. The competition also arises within the Mediterranean, where ports in the Adriatic seek to supplant the centrality of the Piraeus.

The EU’s timid response to this reality does not offer an effective solution to China’s “divide et impera” strategy. Xi Jinping has been engaging with CEE countries through the “16+1 platform”, a transnational initiative which further endangers the cohesion of the EU on the matter.

The European Parliament
The European Parliament

A Commission Proposal Approval From the EU

After insistence from France, Germany and the previous Italian government, the European Parliament approved a Commission proposal contemplating a screening mechanism for Foreign Direct Investments (FDIs), already existing in the world’s major economies. The vote, which took place last month, saw an overwhelming majority (500 in favour, 49 against). While “critical sectors” to protect, such as aerospace, media and health, have grown in number thanks to MEPs, Member States will still have the final say over such investments.

Supranational institutions such as the Commission and the European Parliament have the potential to counter member states’ egoism and safeguard the Union’s common interest. However, the economic crisis has left economically weaker Member States in need of financial resources and are therefore more inclined to entertain bilateral relationships with foreign investors and oppose intrusion from the EU. Manfred Weber, formerly the European People’s Party’s Spitzenkandidat for the presidency of the European Commission, has spoken in favour of a measure that would allow the EU to decide on a case-to-case basis whether foreign investment is detrimental to the EU’s interests.

A Much Bigger Phenomenon

The role of the Belt and Road Initiative in Europe is only one component of a much bigger phenomenon:  the transformation of the world order as we know it. Regionalization has brought the emergence of power blocs and their respective spheres of influence without the need of a Cold War in the background; China’s rise is particularly worrying for the hegemonic United States, which fear that a Thucydides trap could be waiting at the next corner. Chinese claims over Taiwan, its unprecedented activism in Africa and assertiveness in the South China Sea, which threatens the international maritime law, also contribute to the cautious and often confrontational approach taken by Western powers over the OBOR.

The signature of the Memorandum of Understanding by a G7 economy might have offered an important boost towards a more harmonised line of action without having created irremediable rifts in the West and sold fundamental assets to a foreign power; moreover, the long-term essence of the Belt and Road Initiative and the usually short life-span of Italian governments might play in favour of those who are showing scepticism over the Chinese strategy, with an unexpected change in direction from the next Italian government.

The rationale behind this signature appears less surprising when Italy’s intra-government dynamics are taken into account: the two parties in power are divided on the issue; the Five Star Movement is championing closer relations with China in the likely intent to gain more leverage over Brussels with regards to budget flexibility. The North League opposed the signature, but it might have given up its opposition in a show of gratitude to the 5SM, whose votes in Parliament were crucial to forestall a trial on Matteo Salvini over the seizure of an NGO ship.

Euro
The European Central Bank

The Economic Relevance of the EU

Nevertheless, we should not let paranoia poison the debate. The stability of Central Asia is also in the interest of the European Union and so is the rebuilding of the hard-hit economies in Southern Europe. The Belt and Road Initiative presents an opportunity for both economic development and reform of domestic governance in the EU, provided that sensitive assets remain in control of European democracies. The issuing of the EU-Asia Connectivity Strategy last year may be the indication that the EU is ready to curb Chinese soft power in Asia, but the difference in terms of resources available and strategic capability does not play in favour of the Old Continent. Indeed, a more coherent structure, a bigger budget and more effective decision-making are needed for the EU to avoid losing economic relevance in the next decades.

More than ever, the EU’s policymakers should ask themselves whether it is time to step up the game and advance European integration or remain in the limbo where the European Union is currently stuck. Uncoordinated responses, diverging policies and overlapping initiatives do nothing but offer foreign powers the possibility to have the high ground in negotiations and extract concessions more easily. The Union has already shown its potential in matters of trade, where it has managed to carve out an important role as market power, and even in foreign policy, although exceptionally and with mixed results. However, with a budget representing only 1% of the EU’s GDP, the Union is unlikely to keep up with competing for power blocs in general investments and many of the relevant fields of the near future, such as artificial intelligence and space exploration/exploitation.  Of course, a long-term economic strategy such as the Belt and Road Initiative might not be the only factor. Donald Trump’s repeated criticism over Europe’s commitment to NATO, Russian rearmament, climate change migration flows can also change in the mindset of policymakers, both in Member States and EU institutions.

Bibliography

 

An earlier version of this article was originally written for the University of Leiden. 

Tags

Bruno Formicola

Former policy trainee at the European Parliament. Master graduate in International Relations and European Union Studies at the University of Leiden, co-founder of My Country? Europe. Information junkie.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back to top button
Close
Close