China

Is Italy China’s Trojan Horse?

By Andrej Mrevlje |

The center right-populist Italian government has recently bowed to Chinese flattery, announcing it was ready to sign a Memorandum of Understanding that will secure Rome and Beijing in a modern Silk Road. At the end of a long, slow road of decline and political confusion, Rome is in bad need of fresh investment to boost its impoverished economy. Italy, which in 1957 helped found the European Economic Community, still counts as one of the most important EU members and is turning its back on Brussels in hopes that distant Beijing can solve its problems.

Italy was once famous for being a nation of Saints, Poets, and Sailors, and until 30 years ago it was a member of an exclusive club: among the five most developed countries of the world. The country was booming in the late 80s, until the fall of the Berlin wall. Instead of more prosperity, as in countries of emerging economies, the end of the Cold War for Italy was the beginning of a disaster. With less U.S. support, and the explosion of a massive corruption scandal, Tangentopoli, Italy stepped through what now seems to be a point of no return. In 1992, the corruption scandal paralyzed the whole country: half of the Italian parliament was investigated, while the major political parties that ran the country for decades collapsed and vanished from the political scene. As judges were replacing politicians and calling the shots, they also created a political vacuum. The void was soon filled by Silvio Berlusconi, the media tycoon, who, after he lost his political sponsors, needed to protect his livelihood. He needed to get into the prime minister’s office to cover up his dubious businesses.

More than 25 years later, Italy still suffers from the consequences of Berlusconismo. High unemployment, maximum tax evasion, enormous public debt, and young people and talents that flee the country at first opportunity. These are the terrible consequences of Berlusconi’s rule over Italy. But last year it got worse when — after a left-wing interregnum that gave little hope to the pauperized country — the elections brought to power two populist parties: the Five Star Movement (M5S) and the League (La Lega). The two movements agreed on the program and formed the government with a prime minister who does not belong to any of the two political forces.

This government has now prepared the Memorandum of Understanding (MOU) which will be signed in Rome next week during Xi Jinping’s visit. Launched by President Xi in 2013, the New Silk Road project, also known as the Belt Road Initiative (BRI), is considered the largest program of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe and will include dozens of countries and a total population of over three billion people. Later this week, Xi Jinping is due to his first official visit to Rome, hoping to tie the knot by signing the memorandum that intends to drag the Bel Paese closer to the new world powerhouse.

The idea that both sides are now trying to sell is that the BRI is nothing but a modern version of the Silk Road, the ancient network of trading routes that stretched from China to Italy, transporting goods, skills, and ideas halfway around the world. As it is now, more than a thousand years later, a shrunken Italy hopes to play an equally important role in international development. But in joining the BRI, Italy risks having an even lesser role in this world.

Rome intends to open the ports of Italy for Chinese merchandise and technology coming out of Asia, creating transport hubs and rebuilding its crumbling infrastructure, a plan that has provoked a strong reaction from Brussels and Washington. As I am writing this post, growing speculations out of Rome include the possibilities that Beijing might tackle Italy’s enormous public debt, which as a matter of fact would resolve one of the European Union’s enormous problems but at a high price. China will now sit in the backyard of Brussels and want more.

This developing news also includes mysteries about Xi Jinping’s two-day schedule in Italy. Will he go to Venice, the birthplace of Marco Polo, one of the founding fathers of the original Silk Road; will he visit Palermo, which might become the Chinese hub port of Africa? He may even pay a short visit to the Pope, who pushes for the long term agreement with Beijing, the Vatican ready to sacrifice the underground Catholic Church in China in hopes that embracing those loyal to the Chinese Communist Party will bring him more flock. How is it possible that this Pope believes Beijing will open China to the Vatican and the Church will be free to convert communist Chinese into loyal believers?

With all these fast changes, I called Brussels and talked to a high official of the Commission I’ve known for many years. I asked him what the EU plans to do, and what he thinks is happening in Rome. He said:

Evidently, this is another deliberate sign of Rome taking distance from the EU. The MOU is even more important than previous gestures since it comes at the moment in which the EU is making an effort to set up a consistent strategy with China based on a balance of opportunities and risks. It is fundamental that Italy in negotiations with China would obtain reciprocity. Italy should be aware that it can obtain the reciprocity only if negotiating with China respects the line with the EU.

Short of any meaningful and sustainable strategy, Italy’s gesture seems to be a sign coming from the country that it’s ready to sell its assets in exchange for a bit of cash, trying to resolve the poor state of its economy that has no appeal for foreign investors. Chinese understand this situation very well and, after maybe a first and short phase of benign interest, they will oblige Italy to accept their hard conditions, as everywhere in the world.

Without dramatizing this agreement, it is worth noting it further aggravates the negative image of Italy without bringing actual benefits. Eventually, It would have been better for Italy to agree on a specific concrete deal for a project rather than to follow this unwise and politically costly path.

A devastating assessment. Brussels can do very little to stop what the adventurous government in Rome is up to. It can smash the Catalan referendum, but it cannot stop Italy from leaving the boat. On the other hand, this was bound to happen. When ten years ago I was working in Italy as a reporter, I investigated the Chinese economic presence in Italy; Italy was the first of the developed countries that suffered the entry of China in the World Trade Organization. Italian enterprises, fragmented but very creative and highly productive, were located mostly in the north of Italy where the current government has its roots and lost its ground against the flood of much cheaper products coming from China. It was not only the area of Prato, once famous for its textile industry but now populated predominantly by the Chinese labor community. There was also illegal penetration of poorly controlled Italian ports, where the Chinese for more than a decade have landed thousands and thousands of containers of merchandise without paying any duties. I interviewed public attorneys in Rome who, with the help of Polizia Doganale (the Customs Police), led the investigations into the phenomena.

In the headquarters of the attorney investigation team, I talked to officials who showed me documents that traveled with every Chinese container illegally entered Italy. It was impressive paperwork, with production price for every article, transport costs, retail selling price, divided profit margins between sellers, and with the money to be invested in real estate in Italy and some of the cash sent back to China by Western Union. It was a very detailed and scrupulous breakdown of the cost and profit sharing. The handlers of this flood of merchandise hid it in the huge underground warehouses on the outskirts of Rome (the police recorded them on camera). Once the undeclared merchandise landed on European soil, it could travel freely across the European territory. In fact, the apparently more than one hundred Chinese retail shops at Piazza Vittoria in central Rome are in reality showrooms with samples of the merchandise that was hidden in the illegal warehouses around the capital. The Chinese shopkeepers in Piazza Vittorio were receiving commercial agents from all over Europe ordering entire containers of the merchandise. It was before the eyes of everyone that the Chinese were in business. In Naples, they struck a deal with Camorra, the local mafia, which took over the distribution of the Chinese goods.

The public attorney back then told me that his office wrote to the government asking what should they do. Without any concrete answer, the attorney then sent a report of their investigation to Brussels. No reaction either. The attorney then sarcastically told me the Italian government should negotiate with Beijing a certain amount of commission on a yearly basis. It would be enough to run a national budget with this, she said with a wry smile on her face.

A decade later, this is exactly what is happening. The future BRI agreement may as well become an Italian financial rescue plan designed in Beijing, adding legitimacy to this shadow practice. Here, on this side of the Atlantic, where the current administration couldn’t care less about the EU’s destiny, the news from Rome broke the ceiling. White House National Security Council spokesman Garrett Marquis said the belt and road scheme was unlikely to help Italy economically and could significantly damage the country’s international image. The U.S. government first warned Rome not to give access to the Chinese at the port of Trieste, as well as further cooperation between the leading electricity providers of both countries. The Italian prime minister Giuseppe Conte refused the charges, saying, “With all the necessary precautions, Italy’s accession to a new silk route represents an opportunity for our country.”

Other than the prime minister, considered a puppet at the hands of the two coalition parties, the person who most strongly promoted better ties with China is Deputy Prime Minister Luigi Di Maio, the 32-year-old leader of the Five Star Movement. As South China Morning Post reported:

Di Maio also leads the Ministry of Economic Development. His deputy in that ministry, Michele Geraci, held several university positions in Zhejiang province and in Shanghai for a decade before his official appointment last year.

In charge of Italy’s international trade, he is regarded as playing a central role in Rome’s warming ties with Beijing. In an interview with Bloomberg last year, Geraci said the current administration had taken a different stance, adding: “We are trying not to ignore China as has been done in the past.

The Foreign Minister, Enzo Moavero Milanesi, visited Washington in January and held meetings with Secretary of State Mike Pompeo and National Security Adviser John Bolton, expressing seemingly different opinions from his government. Among other things, he discussed banning Chinese telecom giant Huawei from 5G mobile development, the Italian media reported. However, the impact of the U.S. and Brussels on the Italian decision might be hard to quantify. Italy is by no means the only member of the E.U. to show interest in BRI and Chinese investments. Several E.U. countries have already started forms of cooperation with Beijing. And it is not just marginal and indebted countries like Greece, but the leading economies of the old continent. Suffice it to say that, if between 2000 and 2018 Beijing invested about 15 billion euros in Italy, Chinese investments in France were roughly the same level, and in Germany, they exceeded 22 billion; in the UK they came close to 50 billion (according to a recent study by Merics and Rhodium Group).

Before they jump the fence, the Italians, who in principle ought to be more loyal to the strategic partnership with the E.U. they helped found, should also read more carefully the reports on some difficulties BRI projects are encountering around the globe. Last December, Bloomberg published a report that is indicative of how China imagines navigating this boat. But perhaps even more interesting is a recent alert that comes from Minxin Pei, an expert on governance in the People’s Republic of China and U.S.-Asia relations:

But beneath the surface, there is growing unease in China about BRI. And rightly so. With the country feeling an economic squeeze, fighting a trade war with the U.S. and facing criticism from nations receiving BRI funds, Chinese skeptics, including academics, economists and business people, of BRI are quietly asking if their government is putting its scarce resources to the right use. To be sure, there are no official announcements that Beijing is about to pare back Xi’s BRI dreams. Tight censorship has removed any direct criticisms of BRI from the media.

Minxin Pei’s observation on the economic difficulties China will have to face in coming months and years is that while leaders in Beijing continue to stand by BRI, Xi’s original ambitions are being rolled back out of public view. We should not be surprised if Beijing eventually lets BRI, at least BRI 1.0, die quietly, Pei concludes.

Is Pei’s just one of many different opinions? Perhaps so, but what is happening is extremely interesting and coming upon us much faster than expected. So for the time being, if I were you, I would not miss a second in watching what will happen in Italy next week when Xi Jinping and his court lands in the jewel country of Mediterranean.  

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