Italy Joins the Belt and Road. Now Brussels Can Scrutinize Chinese Business Practices to its Heart’s Content
Op/Ed by Chris Devonshire-Ellis
With Italy signing up to China’s Belt and Road Initiative as we predicted back on March 7 the media coverage has predictably been somewhat rabid. The Voice of America has warned of losses of jobs to Italian workers, quoting sources suggesting Italy will become “a Chinese colony” despite the fact that Italy, as part of the EU has a highly scrutinized Schengen visa application process in place. Others, such as CNBC, suggest any point of Italy joining the Belt and Road is unclear while the London Times warns of debt trap consequences.
Counterbalancing this has been the Financial Times stating that Italy is eyeing loans from the Beijing-backed Asian Infrastructure Investment Bank (The Italian government is in fact a shareholder in the bank) while the South China Morning Post reports that Italy is set to open up four ports to Chinese investment.
As I have mentioned before, China’s Belt and Road is the most controversial and internationally divisive campaign of the past 25 years.
Brussels meanwhile expresses worry and ‘concern’, with its own mantra being that EU member states must ‘stand together’ and demonstrate a unified approach to all issues. As concerns China, that has recently manifested itself with Brussels calling China “a systemic rival” amid concerns about EU rules allowing Chinese contractors access to EU projects while Chinese infrastructure projects largely remain off limits to EU investors. There is some justification in this as concerns the investment laws in each as they differ, and China does tend to be more protective of its own territory. However, as I pointed out here, Chinese contractors are also often better prepared, more efficient, and more cost-effective than their EU counterparts. Policy issues are one thing, but the simple economic dynamics that an average welder in Italy earns €32,018 a year, or €15 an hour and in Shanghai, China (one of China’s most expensive cities) about half that at €15,120 a year or €7.36 an hour belies the cost differences. Plus Chinese firms in the EU are less likely to be tied up in local corruption scams delaying projects for increasing fees. These are simple economic facts. Try paying EU workers €7.36 an hour and you’ll be in breach of minimum wage regulations in Belgium, France, Germany, Ireland, Luxembourg, and the Netherlands. Clearly, Brussels policy towards China doesn’t match up with economic reality.
There is also the issue of China’s overseas diplomatic missions having far stronger commercial intelligence gathering teams than much of the EU’s own missions – an issue I pointed out here in the article China’s Trade Intelligence Gathering Leaving EU Contractors Disadvantaged.
In fact, the EU’s China policy is long broken; against the wishes of the Brussels and the United States – France, Germany, Italy, and the UK all joined Beijing’s Asian Infrastructure Investment Bank as shareholders. Meanwhile, the EU’s policy paper on Asia doesn’t even refer in any meaningful way to the Belt and Road Initiative. To view that, please see our map of their directive.
This EU disconnect with China has an unlikely savior: the fact that Italy has signed up to the Belt and Road Initiative. Italy is still part of the EU and must adhere to EU rules of trade, finance, and in contractual terms as regards tenders and infrastructure contracts. In this case, Brussels has the opportunity to study within its own classroom, the exact meaning and structures of how China does business with fellow Belt and Road nations. For its part, Beijing will understand it will be under increased and intensive scrutiny when it comes to Belt and Road projects in Italy. Already, several are being mentioned, including Palermo, which we wrote about here.
That has to be a good thing. While it is true that the Belt and Road Initiative does partner with many autocratic regimes, the concept itself doesn’t appear to discriminate between political systems. And in any event, if the Chinese can build and rejuvenate areas of Italy that desperately require infrastructure build, then it doesn’t really matter who builds it. What matters is that it is put in place, and the local populace have better access to improved communications, transportation, and energy. The opportunity, as I have seen with China’s building of highways in Sri Lanka, isn’t in debating over who gets to build the roads. The debate instead should be what benefits these will bring. In Sri Lanka’s case, a booming tourism industry worth billions every year. (Their North-South Express Highway cost US$741 million. That was expensive, but repaid itself in increased tourism and improved business connections in less than a year.) Italy wants the same. Brussels will do well to study the Chinese lessons of infrastructure build first, and business will follow second. Now they have the ideal opportunity.
Silk Road Briefing is produced by Dezan Shira & Associates. Chris Devonshire-Ellis is the practice Chairman. The firm has 26 years of China operations with offices throughout China, Asia and Europe. Please refer to our Belt & Road desk or visit our website at www.dezshira.com for further information.