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Clingendael Institute Note : Silk Road

27 March 2019

Chinese  cargo in Port of Rotterdam - Source:Frans Berkelaar /flickr

 Italy has officially joined the Belt and Road Initiative [Italy joins China's New Silk Road project]with the signing of a Memorandum of Understanding (MoU). The signing in Rome is not just symbolic, as it goes with 29 deals worth 2.5 billion euros, with Italy claiming follow-up contracts might be worth 20 billion euros.

Details of the deals are unclear, but that is not unusual. Deals announced by head of states are often mere frameworks, with specifics to be finalized later. This is especially true with the kind of megadeals that China is wont to announce. What are the 10 main deals that China and Italy have agreed to?

1. China Communications Construction Company (CCCC) can use its Trieste base to expand transportation links to central and eastern Europe, China, and other countries in the Far East. CCCC will also take part in the development of the port of Genoa, on the Gulf of Genoa.
2. Italian metal plant-builder Danieli will build a steel plant in China.
3. Power-engineering firm Ansaldo Energia will supply parts worth 25 million euros for a new Chinese power plant in Benxi, Liaoning province. The company has also signed a deal with China United Gas Turbine Company (UGTC) for the development of heavy-duty gas turbines.
4. Sunning Holding Group, owner of Italian football club Inter Milan, will sell and promote more Italian products on their e-commerce websites in China.
5. Italy will return 796 “illegally exported” Chinese cultural relics, including artefacts from the Neolithic Age and the Ming and Qing dynasties [Italy agrees to return nearly 800 Chinese cultural relics in goodwill gesture during Xi Jinping visit].
6. Countries will further expand their existing space-technology and satellite cooperation.
7. Countries will further expand their existing science and innovation cooperation.
8. Government-owned investment bank Cassa Depositi e Prestiti (CDP) and Bank of China (BOC) will co-finance Italian companies for a total of 527 million euros. CDP and BOC will furthermore jointly sell Chinese “Panda” bonds in Italy, worth 660 million euros.
9. Chinese tourism to Italy will be boosted. Companies involved are railway company Ferrovie dello Stato, airport operator Aeroporti di Roma, Ferrari Museum, and Ctrip, China’s largest online travel agency.
10. CDP and Italian gas company SNAM will cooperate with China’s state-owned Silk Road Fund (SRF), on gas-related investments in China and in other BRI countries.

Commentary

Port projects: Under the expanded deal for CCCC in Trieste; the port will not only be used to ferry goods from China to Europe, but also to ship Italian products to China and other countries in the Far East, using Chinese shipping and logistics along the way. CCCC’s involvement in Genoa is interesting. Genoa is Italy’s largest seaport and far more developed than Trieste. It is also the first Chinese entry into the Gulf of Genoa, on the northwest side of Italy. The three other Chinese-Italian port projects, CCCC with Trieste, and COSCO with Venice and Chioggia (see SRH 27 Feb), are located on the northeast side of the country.

Tourism: The Chinese-tourist masses are fully weaponized. China uses its free-spending travellers as a carrot or a stick, depending on relations. Countries who have been kicked with the stick include France, Japan, Norway, the Philippines, and most recently South Korea. A sudden drop in Chinese tourism, orchestrated by Beijing, can cost a country billions of dollars. Italy is now on the carrot-side and has been promised more Chinese tourism. Common ways to achieve this are, for example, allowing Italy to open more tourism-agency offices in China. Or Beijing can simply “request” travel agencies to do more to promote Italy, or to decrease promotion of Italy’s competitors.

The inclusion of Ferrovie dello Stato Italiane (FS) (Italian State Railways) in the deal is peculiar. FS is a state-owned holding company that manages the Italian railway network. The company’s subsidiary Trenitalia is Italy’s main rail operator. Another subsidiary, TrainOSE, is a rail operator in Greece. It operates various domestic lines, and international lines running to North Macedonia and Bulgaria. It will be interesting to see if this part of the ‘tourism’ agreement eventually morphs into a larger transportation scheme.  

Gas Turbines: The main shareholder of China United Gas Turbine Company (UGTC) is State Power Investment Corporation (SPIC). On March 26, this company and Siemens Power and Gas announced [Siemens turns to China's SPIC to help turn around gas turbines] a ‘strategic partnership’ for the development of gas turbines. Siemens has long been looking for a partner or even a buyer for its troubled turbine business. Separately, Siemens Power and Gas also signed a technology collaboration deal with UGTC.

The apparent goal for China: the independent development of a new indigenous generation of heavy-duty gas turbines, something the country is currently unable to do. Another company Siemens has been talking to is Japan’s Mitsubishi Heavy Industries, but it seems China is having the upper hand.  

Final: 2.5 billion is not an extremely large number for China, or even for Italy. But most of the deals are clearly part of the BRI, and that makes them far more significant than the mere numbers suggest. The gas turbine activity in Italy and Germany is playbook Made in China 2025, Beijing’s technology-masterplan which names power-equipment as one of its 10 key industries.   

Tycho de Feijter

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