Italy’s Maritime Silk Road Dreams headed for the Rocks?

Posted by Written by Andre Wheeler

Op/Ed by Andre Wheeler

There has been increasing tensions between China and Italy around progressing the recently agreed BRI MOU. Chinese officials have expressed increasing frustration as Italy tries to balance its G7 commitments to Europe with the expectations around infrastructure development needs of their stalling economy. Central to these tensions is the differing port development objective , with China wanting Trieste developed as opposed to Italy’s choice of Genoa.

The Italian government appears to have not understood is that China’s choice of port is shaped by the Belt Road Initiative (BRI) that strategically pairs ports with rail networks to gain access to markets. In the case of Trieste, it will connect with the Trans-European Transport Network, connecting landlocked countries of central and eastern Europe. Furthermore, it builds the narrative that the BRI is moving logistics to an intermodal platform with focus moving from port-to-port cargo measurement to that of last / first mile delivery.

In part these tensions are self – inflicted as Italy reacted to Chinese involvement in the Greek port of Piraeus that diverted maritime trade away from Italian ports. Sadly, Italy is once again headed towards another maritime port conundrum as China deploys its redundancy strategy in the region. As highlighted in previous articles on China’s BRI, one needs to look at what is happening around a strategically located BRI port to fully appreciate China’s intentions as well as flexible approach.

Whilst the Italian’s Foreign Minister recent trip to Shanghai portrays a positive image, there are several issues that are running in the background. Notably is the geo-political spat with the G7 and the USA over Italy’s agreement with China. The result of this has seen Italy succumb to the USA’s insistence that the BRI MOU not allow Chinese 5G networks or investments in the ports of Genoa and Trieste. In the meantime, the likes of Germany and France of signed significant trade agreements with China without having signed up to the BRI. Furthermore, Germany has stated that it does not have a problem with Huawei’s 5G. It is not by accident that trade and investment between China and Italy has stalled .

In response, China has increased its diplomatic efforts in Slovenia and Croatia as their ports of Koper and Rijeka offer the same important strategic location as Trieste. Koper offers better freight connections than that of Trieste. However, all three ports have the same infrastructure issues, namely the rail connection from the port to inland regions.

Initially Koper port development was funded through a Euro 35 million loan from the European Investment Bank in order to increase port capacity. Once the port was developed, it was soon realized that the rail connection into the hinterland was extremely poor, Koper to Divaca. Driving this need is the reality that Koper is a gateway port in that two thirds of its cargo is destined for delivery to landlocked countries. The upgrade of this rail network is estimated to cost around Euro 1bn as the 27km distance traverses risky terrain requiring tunnels and bridges. Initially the Hungarian government signed a Euro 200 million funding pledge but has since placed it on the backburner.

The Koper-Divaca rail connection is an integral part of Slovenia’s 2030 Vision, forming the background to a Slovenian Ministerial delegation formally visiting China in June 2019. The outcome from this trip was Slovenia signing up to the BRI, and more importantly signing a co-operation agreement with China’s Ningbo Port. Ningbo Port currently handles a billion tonnes of cargo in a year. The co-operation agreement specifically deals with intermodal transportation and emphasizes the BRI focus on rail/port pairings to facilitate last / first mile cargo delivery.

In April this year, Croatia also signed an Infrastructure projects agreement, with Rijeka port being the leading contender. Whilst Trieste port is bigger, Chinese investment into Rijeka’s rail network would connect Croatia, Slovenia and Hungary. This may well be a cheaper, faster and long-term better alternative (going around the Alps, even to Vienna) than from Trieste port. Politics included – Croatia may be not only easier, but also safer.

China’s interest in the Baltic – Adriatic transport corridors is gaining momentum. Whilst Trieste offers a Free-port status, all three ports in play, are de facto in the EU (European Union), even though Trieste could come out of it one day – if ever its de facto status (controlled by Italy) could be reversed to a ‘’free port/territory’’. Italy’s inconsistent dealings with China and the citizens of Trieste, has seen a slowdown in trade between the two countries, with Trieste’s dreams of being the Singapore of the Adriatic remaining forever a dream.

This article is published with kind permission of Andre Wheeler of Wheeler Management. He may be contacted at: andre@wheelermanagement.com.au

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Silk Road Briefing is written by Dezan Shira & Associates. The firm provides strategic analysis, legal, tax and operational advisory services across Eurasia and has done since 1992. We maintain 28 offices throughout the region and assist foreign governments and MNC’s develop regional strategies in addition to foreign investment advice for investors throughout Asia. Please contact us at asia@dezshira.com or visit us at www.dezshira.com

 

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