Italy’s Embrace of China’s ‘Belt and Road’ Is a Snub to Washington

Today, Trieste is eagerly preparing to open its port to China as a European point of entry for the “Belt and Road” initiative (BRI), a massive infrastructure spending project designed to bolster sales of Chinese-made goods and services around the world. China and Italy are expected to sign a preliminary agreement in Rome during a state visit by President Xi Jinping scheduled for March 22. Italy will become the 124th nation to sign on, but it will be the first in the Group of Seven, in defiance of loud warnings from the U.S.—and more quietly voiced concerns from some quarters of Europe—that Belt and Road is first and foremost a vehicle for Beijing to expand its sphere of influence.

As part of a constellation of deals that will be signed on the sidelines during Xi’s visit, Trieste’s port plans to enter its own agreement with China Communications Construction Co., or CCCC, according to Zeno D’Agostino, who is president of the port authority. Belt and Road’s biggest builder, CCCC has been dogged by controversy in many of the countries where it has projects.

“Trieste will become Singapore or Hong Kong,” D’Agostino says optimistically. The city has a long way to go to reach that stature. Greece’s port of Piraeus—whose operator is majority-owned by China’s Cosco Pacific Ltd.—has seven times the cargo traffic (4.9 million containers) as Trieste, which in 2018 handled about 725,000 containers. That’s a 45 percent jump from 2015, but still a modest number.

This is why D’Agostino is seeking Chinese help. A new master plan for the port has a wish list of €1 billion ($1.13 billion) in improvements that would speed the movement of goods into the Continent. One of them, dubbed Trihub, envisions linking the port with a newly opened freight train line to points north in Germany, as well as upgrading local rail connections that lead to Eastern Europe. The €200 million Trihub project is among more than a dozen the European Union put on the table in talks with China last year on the EU-China Connectivity Platform, a Brussels-led initiative that seeks to embed European policy priorities such as carbon reduction and market rules into any transport deals struck.

Italy’s attempts to cozy up to Xi, who unveiled Belt and Road in 2013 as a centerpiece of China’s foreign policy, are drawing rebukes both inside and outside the country. The U.S. warned Italy about siding with its trade rival. “Endorsing BRI lends legitimacy to China’s predatory approach to investment and will bring no benefits to the Italian people,” the White House’s National Security Council said on March 9 in a Twitter message.

Italy is entangled in the U.S.-led campaign against the Chinese telecommunications giant Huawei Technologies Co.—Washington has been pressuring allies to bar the company from work on 5G networks. There are signs that Huawei is succeeding in driving wedges between Western allies. Recent announcements by Telecom Italia and Vodafone suggest the companies plan to move ahead on partnerships with Huawei. Other European countries, including Germany and France, have made moves to restrict Huawei’s sales of gear to mobile carriers.

Italy’s populist government has been showing signs of backpedaling on its overtures as Xi’s visit approaches, with outside pressure mounting and members of the country’s fractured leadership appearing to wake up to the geopolitical implications of the coming photo op. On March 11, Italy’s Ministry of Economic Development announced there wouldn’t be any agreement on 5G technology in the paperwork signed during Xi’s visit, appearing to bow to critics who objected on national security grounds. Earlier that day, Deputy Premier Matteo Salvini of Italy’s anti-immigrant League party told reporters he doesn’t want “foreign companies colonizing Italy.”

The fact is, nobody is really in charge of Italy at the moment: The prime minister is a former university professor who was appointed as a compromise between the two rival populist parties that make up the ruling coalition, the League and the Five Star Movement. The official working to steer Italy into China’s orbit is Michele Geraci, an undersecretary at the Ministry of Economic Development who has lived in China and speaks Mandarin.

What Italy stands to gain from a closer relationship with China is clear. Its sputtering economy slipped into its third recession in a decade at the end of 2018. Foreign direct investment amounted to €18.2 billion last year, less than half the €48.1 billion the country logged in 2007, the year before the global financial crisis. The deadly collapse of a bridge in Genoa last summer underscored the urgent need to upgrade Italy’s infrastructure, a focus of Belt and Road. Bilateral trade with China totaled €43.9 billion in 2018, equal to 2.5 percent of Italy’s gross domestic product. That’s smaller than the EU’s 3.8 percent or the U.S.’s 3.4 percent, so there’s clearly room for growth.

Potential downsides lurk in the details of whatever partnerships bloom, including the prospective relationship between Trieste and CCCC, which for now includes no financial terms or contractual obligations, according to D’Agostino. CCCC has faced allegations of fraud in several of the more than 100 countries in which it’s building roads, ports, bridges, and other projects. The company was blacklisted by the World Bank for eight years, starting in 2009, for alleged fraudulent bidding practices for a Philippines highway; Malaysia halted two rail projects with CCCC last year amid corruption investigations; and Canada blocked the company from acquiring a construction company on national security grounds in May. CCCC Chairman Liu Qitao, in an interview in September, disputed any allegations of corruption or wrongdoing in any of its projects.

At the Trieste port authority, D’Agostino insists fears about China are overblown. The paperwork he plans to sign with CCCC isn’t “a concrete agreement,” he says. His goal isn’t bringing in investment so much as bringing in ships. “We want traffic,” he says. Of Italy’s imports by sea, less than 2 percent have come from mainland China in recent years as measured by tonnage, according to EU statistics. At most, D’Agostino sees CCCC taking a 10 percent stake in the Trihub project, the equivalent of €20 million. Says Agostino: “People are talking geopolitics. For me, it’s only business.” —With Giovanni Salzano

©2019 Bloomberg L.P.