Italy has key role to play

2019-03-29, by Giovanni Tria,

East-West relations have entered a new phase. Global market integration, with sustained increases in cross-border exchanges of goods, technology, knowledge and resources, has reshaped international relations, spurring economic development of the traditionally marginal regions and encouraging economic convergence among poorer and richer areas.

The phenomenon has received great impetus from the possibilities offered by technological progress and the increase in physical and digital connectivity, strongly enhanced by the modernization and innovation efforts by Asian countries. What we have seen and are still seeing, indeed, is not a simple shift of production from the West to the East, but a real change in production models. The production and consumption of goods and services have followed value chains that are no longer confined to a local scale, but are extended globally, with activities distributed and organized in different phases, located in different areas, also very far from each other.

Recently, however, globalization seems to have slowed due to the recent crises and the revival of protectionist measures, but also to a probable natural process of gradual saturation. This is a worrying trend, as stepping back from economic cooperation, although temporarily, could entail several economic, financial and political risks.

The Belt and Road Initiative (BRI) launched by the Chinese government in 2013 represents an opportunity to revitalize and expand the global economic integration process, also including many areas left behind. As the old Silk Road determined the flourishing of ancient civilizations and laid the foundations of modern world, so BRI might significantly affect the structure and evolution of the global economic scenario.

The creation of six sea and land corridors, together with the announced aerial route and Polar road, will lead to an extraordinary expansion of connectivity and might represent a significant opportunity to exploit advantages coming from better resource allocation.

But connectivity is not enough. An effective, beneficial and durable integration needs stability and certainty. If improperly managed, the increase of global interconnections can, on the contrary, lead to the creation of risky and extensively dangerous imbalances. Activities and resources move internationally if rules are transparent, stable and shared.

In order to spur a virtuous cycle of satisfactory and widespread growth, the need clearly emerges for global governance of the integration process, through dialogue and fair cooperation between world macroeconomic areas. International relations and global cooperation are in particular required to properly manage the world’s public goods (such as peace and environment), international spill-overs and to create common rules in order to avoid contradictory or inconsistent national actions and to remove all kinds of unfair barriers (not only tariffs, but also legal, regulatory and bureaucratic).

Italy and China indeed have important and growing commercial, productive and financial interconnections. In 2018, the value of bilateral trade between the two countries amounted to 43.9 billion euros ($49.7 billion), an increased of more than 14 percent in two years. Currently, China is the third-largest exporter to Italy with a 7.3 percent share (17.7 percent of Italian imports from non-EU countries) and receives 2.8 percent of total Italian exports (6.5 percent of those to non-EU countries). According to Eurostat data (2017), among the EU countries, Italy is the fourth major commercial partner for China, both in exports and imports.

Foreign investment between the two countries also grew strongly in recent years. Chinese investments in Italy include financial investments in large Italian firms (among them Eni, Enel, Fca, Telecom and several banks and insurance companies); strategic investments (mainly in the energy sector); acquisitions of Italian firms and greenfield investments.

According to MOFCOM statistics, the stock of Italian investments in China in 2015 (last available data) amounted to $66.63 billion (5,432 operations), with 205 of Italian firms making new investments ($372 million) in 2015 alone. In March last year, ENI announced a contract (that should become operational in 2020) to build two refineries for a total value of $24 billion.

Institutional relationships and dialogue between the Italian Republic and the People's Republic of China have significantly strengthened over time.

In 2020, at the end of the 13th Five-Year Plan, bilateral relations will celebrate the 50th anniversary. In view of this date, the "Road-to-50" strategic partnership looks to the realization of bilateral collaboration in the sectors considered as priorities: aerospace, agro-industry, welfare and health, environmental protection and urbanization.

In this regard, last September the Italian Government signed a memorandum of understanding with China's National Development and Reform Commission for joint cooperation in third countries. This way, Italian and Chinese companies will explore how to collaborate in important geographical areas such as Africa, which in the near future will be a top actor for demographic reasons and for its prospects for economic growth.

Playing a role in building and restoring large infrastructure is an invaluable opportunity for Italian firms. There is an astonishing variety of areas of expertise where Italy can provide a competitive, paramount contribution. Beyond those more strictly linked to the physical construction of infrastructures (machinery, logistics, plant construction), Italy has strong capabilities in provision of high quality technical services: consulting, feasibility studies, design, engineering services, monitoring, security, finance and insurance. Italian skills can also be involved in cooperation on intangible but fundamental elements, such as production standards, management of food and data. Finally, yet importantly, Italy can also offer the excellent Italian know-how and technologies related to environmental sustainability, a topic that is rightly the object of special attention in China’s development strategy.

Italy believes in the prospective cooperative development of the BRI. This process will help to identify the paths of action, the main projects, and will also consist of a systematic financial support.

Further, Italy enjoys a strategic geographical position along the current and future frame of commercial relations between East, West and Africa. Located in the middle of the Mediterranean Sea, on the shortest route between the Suez channel and Central Europe, Italy is the second largest manufacturing country in Europe, leading in technological innovation and equipped with high quality ports, road and rail networks. These features make Italy the ideal southern gateway to continental Europe and for the trade routes between Europe and China.

By opening new connections and intensifying trade relations, the BRI will contribute to improve the competitiveness of the Italian and Chinese companies operating in each other’s markets and together toward third markets, leaving the respective governments with the task of providing adequate support to foster a business-friendly climate that can enhance their expertise, strengths and innovative approaches. In the framework of the European rules, simplification and modernization of the fiscal and financial systems, as well as a stable and continuous dialogue between public administrations are some of the policy targets in that direction.

I believe that developing physical connections, while enlarging and strengthening cooperation networks and partnerships, represents a valuable opportunity to face the challenge of sustainable growth and to avoid backtracking toward protectionism and nationalism. Commercial synergies and the building relationships of trust between Europe and China represent the path we want to support to counter global tensions and to favor a wider and more widespread global wellbeing.

Giovanni Tria is the Italian Minister of Economy and Finances.

(Source: China Watch)