The Belt and Road initiative in Italy

### GLOBAL POLITICS AND SECURITY

Volume 9

Edited by

Prof. Lorenzo Kamel, University of Turin's History Department, and Istituto Affari Internazionali (IAI)

Beatrice Gallelli and Francesca Ghiretti (eds.)

GLOBAL POLITICS AND SECURITY

Volume 9

Edited by

Prof. Lorenzo Kamel, University of Turin's History Department, and Istituto Affari Internazionali (IAI)

Bern · Berlin · Bruxelles · New York · Oxford

# **The Belt and Road initiative in Italy**

### **Five case studies**

New York • Berlin • Brussels • Lausanne • Oxford

**Bibliographic Information published by the Deutsche Nationalbibliothek**

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#### Volume prepared in the framework of the IAI project 'When Italy Embraces the BRI'.

Cover illustration: vladm/Shutterstock.com

ISSN 2624-8905 • ISBN 978-3-0343-4496-8 (Print) E-ISBN 978-3-0343-4707-5 (E-PDF) • E-ISBN 978-3-0343-4708-2 (EPUB) • DOI 10.3726/b20683

Open Access: This work is licensed under a Creative Commons Attribution CC-BY 4.0 license. To view a copy of this license, visit https://creativecommons.org/licenses/by/4.0/

© Beatrice Gallelli and Francesca Ghiretti (eds.), 2023

This publication has been peer reviewed.

Peter Lang Group AG, International Academic Publishers, Bern 2023<EMAIL_ADDRESS>www.peterlang.com

### **Contents**

**Bibliographic Information published by the Deutsche Nationalbibliothek**  The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data is available in the internet at http://dnb.d-nb.de.

> Library of Congress Cataloging-in-Publication Data A CIP catalog record for this book has been applied for at the Library of Congress.

Volume prepared in the framework of the IAI project 'When Italy Embraces the BRI'.

Cover illustration: vladm/Shutterstock.com

ISSN 2624-8905 • ISBN 978-3-0343-4496-8 (Print) E-ISBN 978-3-0343-4707-5 (E-PDF) • E-ISBN 978-3-0343-4708-2 (EPUB) • DOI 10.3726/b20683

Open Access: This work is licensed under a Creative Commons Attribution CC-BY 4.0 license. To view a copy of this license, visit https://creativecommons.org/licenses/by/4.0/

© Beatrice Gallelli and Francesca Ghiretti (eds.), 2023

This publication has been peer reviewed.

Peter Lang Group AG, International Academic Publishers, Bern 2023<EMAIL_ADDRESS>www.peterlang.com

### **Figures**

### **Tables**

#### Lorenzo Kamel

### **Foreword**

In 2013, when Xi Jinping launched his plans for a connectivity plan to connect Eurasia, few would have imagined that what came to be known as the Belt and Road Initiative would become such a polarised initiative.

Although the contours of the project were not clear, for several years, and since its launch, the BRI was widely welcomed. The European Union started a series of collaborations between the Chinese BRI and European projects in the frame of the EU–China connectivity platform. Then, criticisms and concern became increasingly common.

Part of the backlash on the BRI is directly linked to the initiative itself and some of its characteristics, such as the lack of transparency, unclarity over labour rights, as well as social and environmental repercussions. However, large part of the criticism the BRI has received is due to the political implication of the socalled rise of China, and some related growing tensions with the US.

While China was becoming more authoritarian and less adherent to international laws (as further confirmed by the repression perpetrated in the Xinjiang Uyghur Autonomous Region), its growing global influence has casted a shadow over any foreign policy initiative that would feed Beijing's strength and influence.

The rising to power of the former US president Donald Trump coincided with new and amplified concerns related to China's relative gain of power and translated some of those into the so-called 'Trade War', and, later on, into a war of narratives that later on will be fuelled by the pandemic of Covid-19. It must be said that the US has roughly 800 military bases outside of its national territory (China only 4) and the countries that refuse Washington's forces on their soil are nevertheless often surrounded by them. On top of this, the concerns expressed by the Trump administration were hardly new. And yet, under the Trump's administration they found an 'undiplomatic expression' that escalated the tensions between the two countries, further polarising the debate.

Against this drawback, it comes as no surprise that the signing of the Memorandum of Understating (MoU) by the Italian government and the People's Republic of China attracted much criticism, sparking a heated debate. This volume sheds light on what the consequences of this political action are. Although the MoU between Italy and China has been widely discussed, no thorough study has been conducted so far to assess its outcome. The Belt and Road initiative in Italy aims to fill this void, and does so by providing a thorough analysis on the results of one of the most controversial memoranda of understanding ever signed.

newgenprepdf

### Beatrice Gallelli, Francesca Ghiretti and Lorenzo Mariani

### **Introduction**

On 21 March 2019, at 6:30 p.m., an Air China airline Boing 474–400 landed in an armoured Rome. On board were Chinese President Xi Jinping and the first lady Peng Liyuan. That was the time when relations between Italy and the People's Republic of China (PRC) moved into the spotlight as never before: during that state visit to Rome, the President Xi Jinping signed a Memorandum of Understanding between the Government of the Italian Republic and the Government of the People's Republic of China on Cooperation within the Framework of the Belt and Road Initiative (BRI) (henceforth, MoU) together with the then Italian Prime Minister Giuseppe Conte, supported by a coalition between the anti-establishment Five Star Movement (M5S) and the Eurosceptic Northern League (later, simply the League). Twenty-nine further agreements (ten of commercial and nineteen of an institutional nature) were signed as additions to the overarching MoU between the two countries. Italy thus became the first (and, thus far, only) G7 country to officially join the so-called Belt and Road Initiative (一带一路) launched by President Xi in 2013. Despite being a non-binding document merely outlining a framework for cooperation, the MoU sparked a heated debate inside and outside Italy's borders: notwithstanding the Italian policymakers' efforts to make the language of the MoU consistent with European norms and standards as well as with the European Union's Strategy on Connecting Europe and Asia of September 2018, the move was welcomed neither in Washington nor in several other European capitals.

In view of the potential review of the MoU scheduled for 2024, this book offers a precious overview of such agreements, the framework in which they are embedded and the history that brought them to be. Before doing so, we will introduce the debate revolving around the MoU and also the historical context in which it took place.

#### **1. The debate on the MoU**

#### **1.1. The view from the United States**

Unsurprisingly, the harshest criticism came from Washington. When, in early March 2019, Italy's Undersecretary of State for Trade and Foreign Investment Michele Geraci confirmed to the *Financial Times* that the Italian Government was negotiating an MoU in support of the BRI, Garrett Marquis – at that time Senior Director for Strategic Communications at the US National Security Council (NSC) – urged it to refrain from supporting what he called China's 'vanity project'. 1 A tweet from the official account of the US NSC stated that 'endorsing [the] BRI lends legitimacy to China's predatory approach to investment and will bring no benefits to the Italian people'. 2 In the following days, more US officials joined in the criticism of Italy's decision. US Ambassador to Italy Lewis Eisenberg publicly stated that Chinese investments in Italian infrastructures would carry risks for Italy's national security. 3

Ambassador Eisenberg's concerns about Chinese investments in infrastructural development in Italy revolved around two sectors in particular: telecommunications and maritime hubs. At that point, the administration of Donald Trump had already embarked on a global campaign to convince US allies to enact bans on the use of Chinese 5G technologies on the grounds that companies such as Huawei or ZTE could grant the Chinese government access sensitive data. Such concerns led to 5G technologies being excluded from the remit of the Sino–Italian MoU, yet concerns regarding the signing of the MoU evidently persisted in Washington.

Another reason for apprehension was that China's state-owned enterprises (SOEs) could now acquire shares in large Italian infrastructure facilities, especially ports, as had already been the case with the Greek port of Piraeus. Criticisms of Italy's decision to sign the MoU also drew on the experience of other countries involved in BRI-related projects, which showed that the initiative was fraught with problems. Specifically, some commentators argued that Italy might be unable to repay the generous Chinese loans through which joint infrastructural projects were supposed to be funded, and it could thus eventually fall into the so-called debt trap. 4

1 Jan Wolfe, 'U.S. Official Suggests Italy Avoid China's Belt and Road Plan', in *Reuters*, 9 March 2019, https://reut.rs/2CboaSf.

2 NSC 45 Archived, 'Italy is a major global economy and a great investment destination', *Twitter*, 9 March 2019, https://twitter.com/WHNSC45/status/1104402719568203776.

3 'Ambasciatore USA: Preoccupati per sicurezza porti italiani', in *AdnKronos*, 29 July 2020, https://www.adnkronos.com/fatti/esteri/2020/07/29/ambasciatore-usa-preoccup ati-per-sicurezza-porti-italiani\_NiUKrmKdC67AhmttAlgKfO.html.

4 Former US Secretary of State Mike Pompeo also warned that Beijing would take advantage of Rome, recalling the common assumption that the BRI only plays in China's favour. Hannah Roberts, 'US Warning to Italy: You're being Exploited by China', in *Politico*, 30 September 2020, https://www.politico.eu/?p=1469788.

#### Introduction 15

The US Government apparently also signalled its distress in private high-level meetings. According to the *New York Times*, Trump Administration officials pressured members of the League to disown the deal – with former Trump campaign manager Steve Bannon warning against China's 'British East India Company model of predatory capitalism'. 5 Although criticism coming from US officials was centred on security concerns, the main problem was that Italy was lending Xi's pet project a good deal of international legitimacy. 6

#### **1.2. The views from Europe**

While criticisms from Washington focused on technology and infrastructures, the debate in Europe revolved around the concern that Italy's decision to act bilaterally would create divisions between EU member states – thus jeopardising the Union's unity vis-à-vis China. 7 The Dutch prime minister, Mark Rutte, warned Italy not to be 'naive' and suggested considering 'the possibility that China [was] also pursuing some of its national interests'. French President Emmanuel Macron stated that 'it is not a good method to discuss bilaterally agreements on the new "Silk Road" '. 8 In addition, veiled criticism came from German Foreign Minister Heiko Maas. Asked about Italy's endorsement of the BRI, Maas said that 'if some countries believe that they can do clever business with the Chinese, then they will be surprised when they wake up and find themselves dependent'. 9

EU institutions also expressed some displeasure. European Commission spokesperson Maja Kocijančič commented that 'neither the European Union nor any of the member states can effectively achieve their aims with China without full unity'. She also recommended that the Italian Government 'ensure consistency with EU law rules and policies' as well as respect for 'EU unity in

5 Jason Horowitz, 'A Forgotten Italian Port Could Become a Chinese Gateway to Europe', in *The New York Times*, 18 March 2019, https://www.nytimes.com/2019/03/18/world/ europe/italy-trieste-china-belt-road.html.

6 Giovanna De Maio, 'Playing with Fire: Italy, China, and Europe', in *Brookings Reports*, May 2020, https://brook.gs/2LyMwtc.

7 Maaike Okano-Heijmans and Tomoki Kamo, 'Engaging but Not Endorsing China's Belt and Road Initiative', in *Clingendael Policy Briefs*, May 2019, https://www.clingend ael.org/node/10262.

8 Alexandra Brzozowski and Jorge Valero, '"Don't Be Naive with China", EU Leaders Tell Italy', in *Euractiv*, 22 March 2019, https://www.euractiv.com/?p=1325630.

9 Natasha Turak, 'Italy Joining China's Belt and Road Project Is "Geopolitically Unwise," Former Prime Minister Says', in *CNBC*, 25 March 2019, https://www.cnbc.com/2019/ 03/25/italy-joining-chinas-belt-and-road-project-is-unwise-former-pm.html.

implementing new policies'. 10 The same advice came from Jean-Claude Juncker, the then president of the Commission, who, on the eve of Xi's visit to Italy, called for a unified EU policy towards China. Growing entanglement with the Chinese economy, he added, could result in the Union losing the ability to hold China accountable for its malpractices – from market distortions to human-rights violations. 11

However, it is worth highlighting that not everyone in Brussels shared these concerns and the negative perception of the MoU between Italy and China. A very high-ranking and authoritative EU bureaucrat expressed his satisfaction with Italy's MoU with China and the language used in the agreement. 12

#### **1.3. The debate in Italy**

Interpretations also diverged in Italy. Some Italian commentators explained the MoU in support of the BRI as a profit-driven choice by a populist and Eurosceptic government ready to defy Italy's EU partners (and the United States) in order to secure greater access to China's market and investments. 13 The MoU was, in this respect, interpreted as a 'soft balancing strategy' targeting Paris, Berlin and Brussels, as Italy could leverage strengthened ties with the PRC in negotiations with those European capitals on other issues. 14 The timing was indeed sensitive from the perspective of other EU member states, because the MoU was signed while the European Council was discussing the preparations for an upcoming EU–China summit. 15

10 Gerardo Fortuna and Samuel Stolton, 'Leaked Memo Reveals China's Detailed Plans in Italy', in *Euractiv*, 8 March 2019 (updated 26 September 2022), https://www.eurac tiv.com/?p=1320628.

11 Ben Westcott, 'EU Leader Juncker Criticizes Uneven Relations with China Days after Xi Visit', in *CNN*, 2 April 2019, https://edition.cnn.com/2019/04/02/asia/junc ker-xi-eu-china-intl.

12 Giulio Pugliese, 'Italy and China: Much Ado about an MoU', in *East Asian Policy*, V0l. 12, No. 4 (April/June 2021), p. 73–89.

13 Nicola Casarini, 'Rome-Beijing: Changing the Game. Italy's Embrace of China's Connectivity Project, Implications for the EU and the US', in *IAI Papers*, No. 19|05 (March 2019), https://www.iai.it/en/node/10105.

14 Philip Giurlando, 'Populist Foreign Policy: The Case of Italy', in *Canadian Foreign Policy Journal*, Vol. 27, No. 9 (2021), p. 251–267.

15 The priorities of the European Council included the establishment of a screening mechanism, an instrument widely seen as essential in defending against predatory investments – including, and especially, from the PRC. Italy abstained from the vote on the mechanism, which made it one of the two outliers (the other being post-Brexit vote

#### Introduction 17

Others maintained that the MoU by no means implied that Rome was changing its traditional Euro–Atlantic foreign-policy approach. They argued that the heated debate about the MoU reflected mounting tensions over trade and other issues between the United States and China, and the politicisation of the PRC in the US domestic debate, rather than the agreement's actual contents. 16 According to this view, striking the agreement represented a way for Italy to defend its economic and strategic interests. These ranged from the desire to strengthen trade and investment relations with the world's second-largest economy to the need to establish a platform for dialogue with a new global power that was gradually increasing its presence in Italy's surrounding regions – especially at a time of perceived American disengagement. 17 But that did not change Italy's preferences, which continued to lie within the Euro-Atlantic framework.

The MoU was also considered to be in continuity with Italy's previous approach to China, although its signing also resulted from the contingent political context of an unorthodox ruling coalition lacking a strategically longterm vision. 18 Supporters of the MoU defended the agreement, claiming that the document was compliant with both the EU strategy on connecting Europe and Asia (released in 2018) and with the principle listed in the EU–China 2020 Strategic Agenda for Cooperation. 19

#### **2. Contextualising the MoU: Italy's attempts to enter the court of China**

#### **2.1. The state of Italy–China trade and investment relations**

Between 2000 and 2019, Italy was the EU's third-largest recipient of Chinese direct investment (15.9 billion euro) after the United Kingdom (50.3 billion

UK); even Greece and Hungary, traditionally deemed to be closer to Beijing than other member states, approved the draft text. Nicola Casarini, 'Rome-Beijing: Changing the Game', cit.

16 Giulio Pugliese, 'Italy and China: Much Ado about an MoU', cit.

17 Dario Cristiani, 'Italy Joins the Belt and Road Initiative: Context, Interests, and Drivers', in *China Brief*, Vol. 19, No. 8 (April 2019), https://jamestown.org/?p=82758.

18 Simone Dossi, 'Italy-China Relations and the Belt and Road Initiative: The Need for a Long-Term Vision', in *Italian Political Science*, Vol. 15, No. 1 (May 2020), p. 60–76, https://italianpoliticalscience.com/index.php/ips/article/view/126.

19 Federico Manfredi Firmian, 'Italy, Like Any EU Member State, Has a Right to Pursue Bilateral Agreements', in *Financial Times*, 25 March 2019, https://www.ft.com/content/ cbcdc214-49ab-11e9-bbc9-6917dce3dc62.

euro), at the time still an EU member, and Germany (22.7 billion euro). 20 Recently, however, Chinese investments in the Union have decreased – most notably, due to the impact of the Covid-19 pandemic: 2020 was the lowest year, in 2021 investments remain low despite a slight increase. In 2021 The Netherlands received most Chinese investment, followed by Germany, France and the UK. The UK and Germany continue to be the main recipients of Chinese direct investment; Italy still ranks third, but with a significant gap from the top two. 21 Chinese direct investments in Italy peaked some time ago – in 2013 – while Italian direct investments in China did so a year earlier. Official data provide a distorted picture of Chinese investments in the EU and vice versa. This is because most Chinese foreign direct investments pass through Hong Kong before reaching Europe, while European companies investing in China do so through holding companies registered in tax-subsidised countries. 22

While general trends in investment have followed an irregular trajectory, trade between China and Italy has increased more steadily. As is almost always the case with China's trade partners, Italy imports from the PRC much more than it exports to it. In 2019, Italy was the third-largest importer of Chinese goods in the EU (after Germany and France),23 while China was the ninth destination market of Italian exports – albeit the first in Asia. 24

These figures tell the story of an unsteady – at times, even troubled – economic relationship between Italy and the PRC. Whatever strategic considerations its supporters may have factored in, the MoU of 2019 was largely intended to inject greater stability and growth potential into this relationship.

20 Agatha Kratz, Max J. Zenglein and Gregor Sebastian, 'Chinese FDI in Europe: 2020 Update', in *MERICS Reports*, June 2021, https://merics.org/en/report/chinese-fdi-eur ope-2020-update.

21 Agatha Kratz, Max J. Zenglein and Gregor Sebastian, 'Chinese FDI in Europe: 2021 Update', in *MERICS Reports*, April 2022, https://merics.org/en/report/chinese-fdi-eur ope-2021-update.

22 Giuseppe Gabusi and Giorgio Prodi, '"Reality check": le relazioni bilaterali Italia-Cina in ambito economico dagli anni Settanta alle "nuove Vie della Seta" ', in *OrizzonteCina*, Vol. 11, No. 2 (2020), p. 12–25, https://doi.org/10.13135/2280-8035/5395.

23 Italian Ministry of Foreign Affairs and International Cooperation, *Osservatorio economico. Statistiche relative all'import/export di merci dell'Italia*, last updated on 17 November 2022, https://www.infomercatiesteri.it/osservatorio-economico-inter scambio-commerciale-italiano-mondo.php.

24 Italian Ministry of Economy and Finance, *I rapporti tra Italia e Cina*, 9 July 2019, https://www.mef.gov.it/focus/I-rapporti-tra-Italia-e-Cina.

#### **2.2. The historical background to the MoU**

In the 1980s and 1990s, Italy and China competed more than they cooperated economically. The reason for this state of affairs was that the Chinese and Italian economies mirrored one another in three critical respects: the existence of a strong manufacturing sector, a heavy reliance on exports and a low-tech production basis. 25 Unable to sustain competition from Chinese exporting giants in core sectors such as textiles, machinery, furniture and home appliances, Italian companies ended up losing out badly. Especially in the early 2000s, Chinese exporters outperformed Italian companies in foreign markets and even at home. 26 To be sure, competition from China was asymmetrical, if not unfair, given the PRC's overall lower labour and production costs as well as the facilitating role played by the party-state. In contrast to other European countries, Italy thus largely missed out on the lucrative chance to exploit the opportunities offered by the rise of the PRC.

The relative loss of international competitiveness was one of the factors that contributed to Italy's unsteady economic performance during the 2000s. This difficult situation was exacerbated by the 2010 financial crisis and the ensuing recession and sovereign-debt crisis in the Eurozone, which further increased Italy's high level of public debt and resulted in a credit-supply crunch. In this much worsened situation, Italy began to regard China as a source of investment as well as a market for Italian products well before the MoU.

In 2009, Prime Minister Silvio Berlusconi (at the time in his fourth spell in power, which lasted from 2008 to 2011) welcomed to Rome then Chinese President Hu Jintao (2003–13) in the first PRC high-level visit to the Italian capital in ten years. 27 Berlusconi signed a cooperation agreement that, on paper, was aimed at expanding bilateral trade – although the Italian prime minister hoped that it would pave the way for greater Chinese investment in Italy. 28 However, the deal did not bring about the wished-for boost in bilateral economic relations. With the Italian economy ravaged by the Eurozone crisis,

25 Giovanni Andornino, 'The Political Economy of Italy's Relations with China', in *The International Spectator*, Vol. 47, No. 2 (June 2012), p. 87–101.

26 Giorgio Prodi, 'I rapporti economici Italia-Cina', in Giovanni B. Andornino (ed.), *Prospettive di un paese in trasformazione*, Bologna, Il Mulino, 2021, p. 107–123.

27 'Cina: firma con Italia accordi che portano avanti sviluppo (Berlusconi)', in *Agi*, 6 July 2009, https://www.agi.it/estero/agichina/cina\_firma\_con\_italia\_accordi\_che\_ portano\_avanti\_sviluppo\_berlusconi\_-3260527/news/2009-07-06.

28 Ibid.

the Chinese grew sceptical about investing in the county's sovereign-debt market without EU guarantees. Berlusconi bequeathed his attempt to court China to the technocratic government led by Mario Monti (2011–13), who met with his Chinese counterpart, Wen Jiabao, in Beijing as part of a tour across Asia to find potential investors. Addressing Chinese officials gathered in the Great Hall of the People, Monti depicted China as a 'strategic partner' and emphasised the need for increasing the level of bilateral investments. 29

The idea of China being the source of its economic lifeblood became embedded in the strategic outlook of subsequent Italian governments. In June 2014, Matteo Renzi, at the time prime minister and leader of the centreleft Democratic Party (PD), signed the *2014–2016 Action Plan for Economic Cooperation between Italy and China* and a memorandum of understanding on cooperation in six major areas (environmental protection and energy, agricultural products and processing, food security, urbanisation, medicine and health, and aviation) during a state visit to Beijing. 30 Just like Berlusconi, at home Renzi was not exactly a China enthusiast and he repeatedly complained about the growing trade deficit and the lack of reciprocity in bilateral investments. 31 Moreover, at the EU level Renzi stood out as one of the most vocal opponents to the granting of market economy status to China. 32 None of this prevented him from having a private meeting with representatives of major Chinese companies that had already invested heavily in Italy on the margins of the 2016 Hanghzhou G20 summit. 33 Renzi met with representatives from Suning (which had bought the Milan-based football team Inter), China National Chemical (which had acquired Pirelli), Bank of China (which had opened its first physical branch in Italy in 2011) and the State Grid Corporation of China. In 2015, Italy was among

29 'Monti: La Cina partner strategico', in *Tg1*, 31 March 2012, http://www.tg1.rai.it/dl/ tg1/2010/articoli/ContentItem-b14c95be-705f-4e44-bac2-9d1952b328ca.html.

30 Giovanni B. Andornino, 'Le relazioni Italia-Cina: verso il rilancio del partenariato', in *OrizzonteCina*, Vol. 6, No. 1, (gennaio-febbraio 2015), p. 6–10, https://www.twai.it/ ?p=1216.

31 Alessandro Barbera, 'Renzi in Cina: dobbiamo aprirci di più', in *La Stampa*, 11 June 2014, https://www.lastampa.it/esteri/2014/06/11/news/renzi-in-cina-dobbiamo-apri rci-di-piu-1.35743135.

32 Francesca Ghiretti, 'Italy and the Comprehensive Agreement on Investments: Disappointment Over the Process', in *Asia Europe Journal*, 25 July 2021, https://doi.org/10.1007/s10308-021-00630-6.

33 'Renzi in Cina incontra presidente Xi, "le relazioni si rafforzano" ', in *AGI*, 3 September 2016, https://www.agi.it/politica/primo\_giorno\_di\_renzi\_in\_cina\_incontro\_con\_ xi\_imprenditori\_e\_studenti-1049092/news/2016-09-03.

#### Introduction 21

the seventeen EU member states (alongside the United Kingdom, France and Germany) that joined as founding members the China-led Asian Infrastructure Investment Bank (AIIB), which was meant to lend financial support to projects related to the Belt and Road Initiative. 34

The political investment made by Prime Minister Renzi survived his term in office. In February 2017, the Italian president of the republic, Sergio Mattarella (2015–present), visited China, and a few months later then Prime Minister Paolo Gentiloni (2017–18) – Renzi's successor to the PD leadership – attended the Belt and Road Forum for International Cooperation in Beijing, the only leader of a G7 country participating in the event. 35

These high-level political initiatives show that cooperation in the fields covered by the MoU was set up largely before the signing of the MoU itself in March 2019. In this regard, the Italian case validates the argument that the BRI is largely a 'rebranding' tactic for projects that predate the 2013 launch of the initiative and that can be traced back to the 'Go out policy' of 1999, through which Chinese firms were encouraged to invest abroad. 36 Likewise, Italy's pursuit of deeper trade and investment relations with the PRC was a decade-long effort that was very much in line with a general trend in Europe and elsewhere to get economically closer to the fastest-growing large country in the world. 37 The issue is whether the signing of a document in support of a controversial political initiative such as the BRI has indeed increased Italy's vulnerability to potential malpractices by China's government and/or corporations or not.

#### **3. Book structure**

To deeply understand the implications of the MoU between Italy and the People's Republic of China, five fields of cooperation are analysed, namely infrastructures—specifically ports—, media, finance, research in science and

34 Giuseppe Gabusi, 'Global Standards in the Asian Infrastructure Investment Bank: The Contribution of the European Members', in *Global Policy*, Vol. 10, No. 4 (November 2019), p. 631–638.

35 Nicola Casarini, 'Rome-Beijing: Changing the Game', cit.

36 Juliet Lu and Erik Myxter-Iino, 'Beyond Competition: Why the BRI and the B3W Can't and Shouldn't be Considered Rivals', in *Rosa Luxemburg Stiftung Publications*, 14 October 2021, https://rosalux.nyc/?p=14763.

37 Giulio Pugliese, Francesca Ghiretti and Aurelio Insisa, 'Italy's embrace of the Belt and Road Initiative: populist foreign policy and political marketing', in *International Affairs*, Vol. 98, No. 3 (May 2022), p. 1033–1051, https://doi.org/10.1093/ia/iiac039.

technology, and higher education including academia. As mentioned above, the MoU is a non-binding document merely outlining a framework for cooperation in various areas. The research has focused specifically on these five fields, because they are crucial areas of cooperation both in terms of China's domestic politics as well as Italy–China relations. In addition, all of them are mentioned in the Sino– Italian MoU in support of the BRI (Paragraph II, Areas of Cooperation). The memorandum includes specific sections on transport, logistics and infrastructure as well as finance – while the fields of science, education and media go under 'people-to-people connectivity'.

To gauge the impact of the MoU in concrete terms, the agreements signed in the context of the MoU are situated in the larger context of China–Italy cooperation in the previous years, that is before 2019.

The first chapter focuses on ports and maritime infrastructures, which are some core elements of the China-led Initiative (BRI). Two commercial agreements that accompanied the MoU involved the ports of Genoa and Trieste and the state-owned enterprise China Communications Construction Company (CCCC). These agreements were among the most discussed in the debate around the MoU, as there was a general concern that CCCC would eventually obtain a controlling share of the ports, not unlike that recently secured by the China Ocean Shipping Company (COSCO) with Greece's Port of Piraeus. However, as the in-depth research shows, existing legal constraints, an open international and national debate, and the vague nature of the agreements have so far kept these fears from materializing.

The following chapter deals with financial cooperation, an essential element to boost bilateral economic ties, providing firms with more effective instruments to operate in foreign markets. It should come as no surprise, then, that financial cooperation was a pillar of the MoU, and agreements in this sector were signed in March 2019. However, the analysis of BRI-related commercial agreements between Italian financial institutions and their Chinese counterparts shows that they have not resulted in any ground-breaking development. These agreements have apparently just added a 'BRI' badge to pre-existing trends of collaboration. The BRI-related MoUs in the field of financial cooperation do not, for the time being at least, justify concerns that China may gain an economic foothold in Italy large enough to win it much political influence.

The third chapter is concerned with a field that is often overlooked in the mainstream debate on China, that is China's presence in foreign media. In recent years, Beijing has pushed its national media outlets to 'go global' with the aim of improving China's image abroad. In the occasion of the signing of the MoU in March 2019, two of the most important Italian media outlets, Rai

#### Introduction 23

and Ansa, signed bilateral agreements with China Media Group (CMG), China's conglomerate of state radio and television broadcasters, and Xinhua, the PRC's state-run press agency, respectively. Despite they have not had a deep impact on Italians' perception of China. These deals fit in a broader picture of an Italian media environment that is being increasingly targeted by Chinese media. It must be acknowledged that the impact that such an effort has had on the Italian public opinion has been very limited so far and the Italian media landscape keeps offering free and varied information. However, the way in which the cooperation between Italian media and Chinese counterparts has developed raise some concerns as they may be vehicles of potential disinformation.

The fourth chapter delves into China–Italy cooperation in higher education and research. China has invested considerable sums to promote cooperation and exchanges with the Italian academy, including through the establishment of a dozen Confucius Institutes and a number of Confucius Classrooms. In other EU countries and in the US, the Confucius Institutes and Confucius Classrooms over the political interference they may exert in the host country. However, in Italy the debate has been more narrowly focused. As the research shows, while cooperation in higher education and research is a positive aspect of the broader Italy–China relationship as it contributes to the advancement of the scientific and cultural environment in both countries, at the same time it has also posed inevitable risks of self-censorship and kowtowing to Chinese wishes.

Tightly bound to the previous chapter, the following one is concerned with Italy–China cooperation in the research on science and technology. Like many other developed countries, Italy has played a role in contributing to China's growth as a science and technology (S&T) power. Scientific cooperation was included in the MoU of March 2019. The study of the agreements in this field will demonstrate that most S&T bilateral collaborations are decade-long and predate the MoU; however, the MoU of March 2019 has reinforced the process of centralisation of S&T collaborations as well as a public debate that has grown to include matters regarding 5G technology and public procurement involving Chinese technology.

#### **References**

*OrizzonteCina*, Vol. 11, No. 2 (2020), p. 12–25, https://doi.org/10.13135/2280- 8035/5395

#### Francesca Ghiretti

### **Chapter 1: The Maritime Belt and Road: Italian ports**

Ports and maritime infrastructures are some of the core and most traditional elements of China's Belt and Road Initiative, in that they help the People's Republic to access foreign markets and gain more control of fundamental trade routes, thus better safeguarding China's imports and exports. 1 As such, BRI-related deals involving ports have been a special focus of the debate, and concerns, surrounding the Initiative.

When it comes to Europe, Northern European ports occupy greater relevance than those in Southern Europe, that is the case regardless of the BRI. Rotterdam in the Netherlands, Antwerp in Belgium and Hamburg in Germany have been thriving for decades as Europe's main maritime hubs, and future access to the Arctic route has the potential to further strengthen their position. This might come at the expense of other European ports. Southern European ports have thus been looking for ways to enhance their competitiveness.

The expansion of the Suez Canal, which has increased the volume of trade into and from the Mediterranean; and Chinese investments in maritime infrastructures in Southern Europe appeared to be providing two means to achieve that.

The Suez Canal development was completed in 2016, the same year that China Ocean Shipping Company (COSCO) acquired 51 per cent of the Port of Piraeus in Greece. 2 The acquisition is the origin story of most concerns regarding Chinese investments in European ports and, specifically, those located in Southern Europe. The well-known argument runs that China has been strategically investing in these facilities, which are often going through difficulties or are underdeveloped, in order to control the routes of the New Maritime Silk Road – part of the broader BRI. The contention is that by doing so, China wins a strategic advantage over other countries commercially and, potentially, politically.

1 Jonathan Holslag, *The Silk Road Trap. How China's Trade Ambitions Challenge Europe*, Cambridge, Polity Press, 2019, p. 97.

2 Kerin Hope, 'Greece Picks China's Cosco in Port Deal', in *Financial Times*, 20 January 2016, https://www.ft.com/content/d65aa7c4-bfb1-11e5-846f-79b0e3d20eaf.

It should come as no surprise that when Italy and the PRC signed the MoU in the framework of the Belt and Road Initiative in March 2019, concerns in Europe but mostly, in the United States mounted. 3 The fact that two of the 28 agreements4 under the broader MoU concerned partnerships between the Western Ligurian Sea Port Authority (WLSPA), which includes the Port of Genoa, and the Eastern Adriatic Sea Port Authority (EASPA), which includes the Port of Trieste, with China Communications Construction Company (CCCC) further cemented such worries. 5

#### **1. The leading Chinese companies operating in the Italian port sector**

Chinese firms such as COSCO and CCCC have become increasingly relevant globally, maturing into essential partners for both Northern and Southern European ports.

China Ocean Shipping Company, or COSCO, is a state-owned enterprise with its HQ in Shanghai. In 2020, the COSCO shipping fleet ranked first in the world for number of vessels, while its container fleet ranked third for capacity. Other elements of its fleet still top global rankings, making it one of the world's largest shipping companies. 6

COSCO does more than shipping. It has what it calls a '6+1' industrial cluster layout composed of 'shipping, logistics, finance, equipment manufacturing, shipping services, and social services industrial clusters' plus a focus on online business*.* 7

3 Italy and China, *Memorandum of Understanding Between the Government of the Italian Republic and the Government of the People's Republic of China on Cooperation within the Framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative*, 22 March 2019, https://www.governo.it/sites/governo.it/files/Memorandum \_Italia-Cina\_EN.pdf.

4 In the majority of cases, included those of Genoa and Trieste, the agreements are also Memoranda of Understanding. To avoid confusion with the MoU signed by Italy and the Chinese, they will be referred to as agreements unless specified otherwise in the text.

5 Italian Government, *Lista delle intese commerciali presentate a Villa Madama. Visita di Stato del Presidente cinese Xi Jinping (22–23 marzo 2019)*, https://www.governo.it/ sites/governo.it/files/Intese\_commerciali\_Italia-Cina.pdf.

6 China COSCO Shipping website: *Group Profile*, http://en.coscoshipping.com/col/col6 918/index.html.

7 Ibid.

COSCO has even taken steps to get rid of its 'China label' in Europe and be viewed and identified as a European enterprise by creating Diamond Line Gmbh. Headquartered in the German port of Hamburg, Diamond Line handles all intra-European business previously directly managed by COSCO. 8 According to the Manager of COSCO Lines, Italy, Turkey, and, naturally, Germany are the core countries comprising Diamond Line's business. 9 This simple rebranding of COSCO is not an isolated case; an increasing number of Chinese enterprises have adopted different names locally to circumvent potential issues linked to their Chinese origins.

China Communications Construction Company (CCCC), another stateowned enterprise, is one of the main contractors for BRI projects. Unlike COSCO, CCCC is not just concerned with the maritime sector. It is also a construction company specialising in infrastructure projects, with expertise spanning highways and railways; airports; energy platforms; and, last but surely not least, ports. 10 It is CCCC, not COSCO, that appears as a partner for both the ports of Genoa and Trieste in the Italy–China MoU of March 201911 – and one might wonder why the MoU was struck with it rather than an established maritime-operations company such as COSCO. The answer is that neither Genoa nor Trieste were looking for collaborations directly on their ports: Genoa was considering Chinese investment for the construction of a new breakwater dam, and Trieste for railway stations and rail connections.

A third state-owned enterprise with businesses in Italy is China Merchants Group (CMG), which operates in 'airports, and other container and cargo terminals worldwide' – often using subsidiary companies. 12 Unlike CCCC, headquartered in mainland China, CMG is based in Hong Kong. It is operative in

11 Italian Government, *Lista delle intese commerciali presentate a Villa Madama*, cit.

8 'COSCO Transfers Intra-Europe Services to Diamond Line', in *Container News*, 3 January 2020, https://container-news.com/cosco-intra-europe-services-diam ond-line.

9 'Cosco to Launch a New European Line and to Strengthen Its Presence in Italy', in *Xinhua Silk Road Information Service*, 13 January 2020, https://en.imsilkroad.com/p/ 310464.html.

10 China Communications Construction Company (CCCC) website: *About Company: Introduction*, http://en.ccccltd.cn/aboutcompany/introduction.

12 See the website of the China Merchants Port Holding Co. Ltd: http://www.cmport.com. hk/en.

the Italian coastal city of Ravenna with its research centre in naval engineering,13 and it has shown an interest in investing in a new logistic platform in Trieste. 14

Interestingly, data from 2018 illustrate that China handled only 2.0 per cent of maritime transport from/to Italy, thus playing a relatively marginal role compared with other countries in Europe (51 per cent) and the United States (13.5 per cent). Despite this gap in numbers, however, the PRC is the third most important shipping partner for Italy after the rest of the European Union and the US. No less than 95.8 per cent of traffic between Italy and China is seaborne, with Italy importing twice as much as it exports to the People's Republic. 15

#### **2. The ports of Genoa and Trieste**

It should be noted that Genoa and Trieste are only two of the numerous Italian ports where Chinese companies either have existing agreements and/or partnerships or have been exploring the option to invest. Other ports of interest are Venice, Taranto, Gioia Tauro, Naples and Salerno – as well as Ravenna. In Venice, CCCC invested in the construction of a high-bottom quay, and in 2019 the city's port signed an MoU with the COSCO-majority-owned Port of Piraeus to increase traffic volumes. 16 Furthermore, until 2020 Venice was one of the Ocean Alliance terminals, a naval alliance between China and the French shipping company CMA-CGM. 17 In Ravenna, China Merchant Grouphas invested in developing a European hub for naval engineering. 18 The cases of the ports of Genoa and Trieste stand out, however, because these are the only two included in the broader MoU signed by Italy and the PRC in 2019.

13 Ilaria Vesentini, 'A Ravenna il colosso cinese CMG. La sede nel palazzo di Gardini', in *Il Sole 24 Ore*, 19 June 2018, https://www.ilsole24ore.com/art/a-ravenna--colosso-cin ese-cmg--sede--palazzo-gardini-AEXBdV8E.

14 Nicola P. Contessi, 'Italy, China's Latest Gateway to Europe', in *Reconnecting Asia*, 7 May 2019, https://reconnectingasia.csis.org/analysis/entries/italy-chinas-latest-gatewayeurope.

**Figure 1.1:** The Port Authority of the Western Ligurian Sea and the Port Authority of the Eastern Adriatic Sea

*Sources*: Port Network Authority of the Eastern Adriatic Sea, https://www.porto.trieste.it/eng/portauthority/mission-eng; Ports of Genoa website: *The Western Ligurian Sea Port Authority*, https:// www.portsofgenoa.com/en/about-us/port-authority.html

The ports of Genoa and Trieste both have long histories. The Port of Genoa – now under the WLSPA, which also includes Savona, Pra and Vado Ligure – has operated in the Mediterranean since ancient times. The area surrounding it was already active in shipping in Roman times. During the Middle Ages, it became an important maritime stop lying at the centre of the trade routes between Europe, Africa and the East – with the Republic of Genoa, in particular, controlling a network of commercial stations that stretched as far as the Black Sea and the Indian Ocean. In modern times, the ports in the area have been a driving force supporting the development of Italian industry. 19

The history of the Port of Trieste is also rich, although not quite as ancient. Built in the 1700s, Trieste's free port became increasingly important over the following century – and never more so than when it became the beating heart of the maritime trade of the Austro-Hungarian Empire in the 19th and early

19 Ports of Genoa website: *Economic Impact*, https://www.portsofgenoa.com/en/about-us/ port-in-numbers/economic-impact.html.

20th centuries. Following the Treaty of Paris (1947), Trieste was recognised as an international free port – a status that it has retained to this day. In 2014, the Port Authority presented a study on its free port and its advantages, noting that the city's port has 73 per cent more facilities than other Italian ports, reconfirming its role as one of Italy's most important maritime hubs. 20 Trieste was also the only Italian port to make the list of top ten EU freight ports in 2018 (it ranked ninth), but it slipped from the list in 2020. 21

**Figure 1.2:** Top ten European ports in 2020

*Source of data*: Shipa Freight, "10 Largest Ports in Europe", in *Shipa Freight Knowledge Series*, 4 January 2021, https://www.shipafreight.com/knowledge-series/largest-ports-in-europe.

20 Trieste Port Authority, *Vantaggi operativi, commerciali e fiscali del regime di punto franco del porto di Trieste*, March 2014, p. 15, http://documenti.comune.trieste.it/porto vecchio/vantaggi\_punto\_franco.pdf.

21 Eurostat, *Rotterdam: The Largest Freight Port in the EU*, 2 April 2020, https://europa. eu/!Cn68kh.

Nowadays, the ports under the WLSPA serve as entry points for goods headed for France, Switzerland and Germany. Those under the EASPA channel trade to Austria and most of Eastern Europe, although they also function as gateways to Central Europe. Both are intermodal ports, which means that their maritime dimension is complemented by structures of charge and discharge connected to inland – often rail – transportation. Both ports want to further develop their networks, which is where much of the Chinese interest lies.

China's investment in Trieste is not just a matter of facility size but of geographical continuity. Trieste's proximity to the Port of Piraeus, which is majority-owned by COSCO, makes it an easy choice for Chinese companies willing to further develop their networks in Eastern Europe, considering that rail connections in these areas are suboptimal. Yet, WLSPA's collaboration with COSCO, the majority shareholder of the Port of Piraeus, is more long-standing and better developed (despite occasional hiccups) than that of CCCC with either port authority, making COSCO a more suitable partner than CCCC. Besides, both the WLSPA and EASPA face fierce competition from their neighbours. Trieste must deal with another historic port in the area – Venice – which, as mentioned earlier, has struck an agreement with the Port of Piraeus (as well as with the Port of Koper in Slovenia). The Western Ligurian Sea Port Authority operates in areas near the port of La Spezia, which is also an important hub for container ships.

#### **3. Before March 2019**

It is crucial to bear in mind that at the time of signing the MoU between Italy and China in March 2019, both Genoa and Trieste already had either ongoing or planned collaborations with Chinese counterparts.

#### **3.1. The Western Ligurian Sea Port Authority**

The Port Authority of the Western Ligurian Sea has a higher number of collaboration initiatives with Chinese counterparts that began before March 2019 than afterwards. For example, in 2012 the Port of Genoa signed a customs agreement with Tianjin and in 2017 concluded a deal with Wenzhou for a customs corridor for the fast trading of food and beverages. 22 Most notable, however, is the participation of COSCO and Qingdao Port Group, the authority of the Port of Qingdao in north-eastern China, in Vado Ligure. In 2007, APM Terminals

22 Interview with an official from the Ports of Genoa.

(part of the Danish giant Maersk) won a public bid for the construction of a new terminal in the Port of Vado Ligure, near Genoa and now under the WLSPA. Following the global financial crisis of 2008, however, APM was no longer able to progress such a large project on its own. Eventually, in 2016, COSCO and the Qingdao Port Group were brought on board to create a new joint venture: APM Terminals Vado Ligure S.p.A., of which APM retains a majority share (50.1 per cent) and COSCO and Qingdao Port Group hold 40 per cent and 9.9 per cent, respectively. 23 APM Terminals Vado Ligure S.p.A. now has a 50-year lease from WLSPA for the port's management. 24 The terminal was inaugurated on 12 December 2019 and became operational in February 2020, although one of its most remarkable features, the 700-metre quay, was not officially opened until July 2020. 25

Another business move of interest was the opening in 2017 of an office in Savona, to the west of Genoa, by Shanghai Zhenhua Heavy Industries Company (ZPMC). ZPMC produces ship-to-shore cranes 80 metres high that are fundamental to the loading and unloading of container ships. The company now supplies cranes to the ports of Vado Ligure and Pra, both within the WLSPA. 26

#### **3.2. The Eastern Adriatic Sea Port Authority**

The Port Authority of the Eastern Adriatic Sea envisioned a significant upgrade of its collaboration with potential Chinese investors in the so-called 'Trihub', a project launched in 2016 on the initiative of then Infrastructure and Transport Minister Graziano Delrio. 27 A coordinated effort by the Port of Trieste and Italian Railways Network (RFI), Trihub was meant to develop Trieste's Campo Marzio station, the central rail infrastructure serving the port, and turn it into a larger hub connected with the stations of Cervignano and Villa Opicinia. This development project has already received a 110 million euro in investment

23 APM Terminals website: *Vado Ligure: History*, https://www.apmterminals.com/en/ vado-ligure/about/history.

24 Ports of Genoa website: *Vado Gateway – APM Terminals Vado Ligure S.P.A.*, https:// www.portsofgenoa.com/en/port-basins/basins-vl/basins-apm-vl.html.

25 Elena Romanato, 'Inaugurata la piattaforma di Vado Ligure', in *La Stampa*, 12 December 2019, https://www.lastampa.it/savona/2019/12/12/news/inaugurata-la-piattaforma-divado-ligure-1.38200938.

26 Interview with an official from the Ports of Genoa.

27 'Trieste e Genova, porti della Via Seta in Europa', in *Ansa*, 23 March 2019, https:// www.ansa.it/mare/notizie/portielogistica/news/2019/03/23/ansa-focus-trieste-e-gen ova-porti-della-via-seta-in-europa\_72615232-c379-4b4a-b256-80580fc4aeaa.html.

from the Italian State Railways (FS). The completion of this part of the project is expected by 2024. Another part of the Trihub project concerns the reactivation of the Servola and Aquilinia stations; this is the part of the project in which the Chinese were to be involved. 28

These are all targeted projects aimed at improving the rail connections of the Port of Trieste, which views such links as one of its strengths, but none of them includes investment in the shares of the port itself. The project was presented at the EU-China Connectivity Platform and received the green light from the European Commission. The European Investment Bank loaned 39 million euro to develop further railway connections – to which the Connecting Europe Facility, a financial instrument supporting connectivity across and beyond the European Union, has added 6.5 million euro. 29

Trihub is not the only potential collaboration between the Port of Trieste and a Chinese counterpart dating from before March 2019. In 2018, CMG showed an interest and opened talks to invest in the soon-to-be-completed Logistic Intermodal Platform. Worth 130 million euro, this was at the time owned by Francesco Parisi S.p.A., a shipping company, and ICOP S.p.A., a construction company. The new logistic platform is built on an area of 120,000 square metres reclaimed from the sea and connected directly to railways and motorways. 30

#### **4. The Memorandum of Understanding of March 2019**

The MoUs of the Port of Genoa and the Port of Trieste with CCCC are included in the list of commercial agreements signed in March 2019 within the framework of the broader Sino–Italian MoU in support of the BRI. Asked about the nature of these arrangements, stakeholders contend that they were nothing more than broad and general frameworks of cooperation, an expression of intent to further develop and enhance ties with CCCC in the context of an improved trade relationship between Italy and China. Point 2 of the MoU between the two countries – which concerns transport, logistics and infrastructure – indeed reads as follows:

28 Interview with an official from the Port Authority of the Eastern Adriatic Sea; Marco Morino, 'Porto di Trieste, maxi hub ferroviario tra Europa e Far East', in *Il Sole 24 Ore*, 27 December 2019, https://www.ilsole24ore.com/art/porto-trieste-maxi-hub-ferrovia rio-europa-e-far-east-ACufI34.

29 'Port of Trieste, 39 Million Euros from EIB to Reinforce Railway', in *AdriaPorts*, 9 December 2019, http://www.adriaports.com/it/node/892.

30 Nicola P. Contessi, 'Italy, China's Latest Gateway to Europe', cit.

[Italy and the People's Republic of China] share a common vision about the improvement of accessible, safe, inclusive and sustainable transport. The Parties will cooperate in the development of infrastructure connectivity, including financing, interoperability and logistics, in areas of mutual interest (such as roads, railways, bridges, civil aviation, ports, energy – including renewables and natural gas – and telecommunications). 31

The wording does not suggest any precise objective or project; however, some more-specific ideas were being explored. The MoU then continues by directly mentioning the BRI and the potential 'synergies' between the Chinese project and the development of Italy's transport system, which does not stop at ports. Notably, the explicit mention of the Trans-European Transport Network (TEN-T) and the EU–China Connectivity Platform, two European connectivity frameworks, has a double meaning. First, it underlines how the MoU was situated under the EU umbrella, and was not a rogue Italian initiative as feared. Second, it suggests that for the Chinese, the MoU with Italy was one of a number of moves through which they intended to enjoy much greater participation in the Italian and European transport and infrastructure sector.

Some more 'pragmatic' aspects are mentioned – such as quicker customs clearance, more significant funding for sustainable and digitalised transportation, and transparent and non-discriminatory procurement. These objectives remain vague, however. The exception is the deliberate inclusion of transparent and non-discriminatory procurement, which underlines Italy's commitment to sign off on an agreement bound to existing legal and regulatory frameworks. 32

Besides outlining broad and general future collaborations, the MoU included little to no detail. Yet, the more specific agreements and developments that followed were undoubtedly the result of the agreement signed in March 2019. If the offer made to the WLSPA and the EASPA were very similar, they were received differently – leading to marginally different outcomes. Despite some developments, it will be shown how, to this day, what followed remains mostly inconsequential.

#### **5. After March 2019**

For clarity, this section will first look at the MoU developments with the WLSPA and then move on to the EASPA.

31 Italy and China, *Memorandum of Understanding*…, cit., p. 3.

32 Ibid., p. 4.

#### **5.1. The Western Ligurian Sea Port Authority**

After March 2019, CCCC offered the WLSPA participation in a new logistics park in China in order to sell Italian products. This offer was complemented by the option for Italian enterprises to sell their products on an online platform operated by CCCC. These initiatives, while aimed at local enterprises, were expected to be coordinated by the Port Authority. To this day, however, the WLSPA has not participated in the creation of the proposed logistics park; it appears that this venture was not a viable option for the Port Authority, which at the time did not have the financial capacity for such an investment. 33

The WLSPA organised meetings with its local confederation of employers in order to explore their interest in selling products in China through the proposed and/or other online platforms, but the relatively small size of most Italian enterprises made the process more complicated than its Chinese counterpart expected. Even if firms were interested in using the online platform offered by CCCC, getting their products to China constituted a rather tricky endeavour. The relatively limited amount of potential exports – a reflection of the small-tomedium size of the exporting companies involved – hardly covered the cost of shipping. In other words, the size of the Italian enterprises prevents them from conducting large-scale shipping – making the Chinese offer ultimately difficult to capitalise on. The WLSPA has been exploring the possibility of gathering the products of all the enterprises willing to participate and then shipping them together, but has yet to make progress in this direction. In the meantime, similar agreements regarding the selling of Italian products on Chinese online platforms have been brought forward by other Italian actors. 34

Another, more important reason behind CCCC's interest in the WLSPA concerns the Chinese company's potential participation in a public bid to construct a new breakwater dam, the largest project at the port of Genoa (worth about 1 billion euro). CCCC may also be interested in further expanding COSCO's and Qingdao's activities, already present in Vado Ligure, to the Port of Genoa. 35 Neither plan had gone ahead at the time of writing. CCCC participated in the public bid for the breakwater dam but ended up seventh among the candidates and

33 Interview with an official of the Ports of Genoa.

34 See Chapter 2 in this volume.

35 'Porto Genova, con la nuova diga foranea un'unica banchina lunga 3,2 km', in *Telenord*, 7 August 2020, https://telenord.it/porto-genova-con-la-nuova-diga-foranea-un-unicabanchina-lunga-3-2-km.

was therefore excluded from the tender. 36 An MoU between the Port of Qingdao and the Port of Genoa was under discussion but is yet to be finalised. Thus, as far as we know, the MoU between the Western Ligurian Sea Port Authority and CCCC has been largely inconsequential. Progress has only been made regarding the above-mentioned new terminal at Vado Ligure – which, however, is not part of the MoU signed in March 2019 and does not involve CCCC. We can thus safely state that the MoU, thus far, has had little impact on the ports under the WLSPA and the authority's relationship with Chinese companies. Therefore, it has not led to any potential exposure of Italy to new risks.

#### **5.2. The Eastern Adriatic Sea Port Authority**

After the MoU signing in March 2019, the Port of Trieste signed a second and more specific MoU with CCCC in November 2019 in Shanghai, in the presence of Foreign Minister Luigi Di Maio. 37 This latter agreement built on the premise of spring 2019, meaning developing the collaboration between the EASPA and CCCC. 38 Its specific areas of cooperation concerned the presence of the Port Authority in China, CCCC's presence in the Italian port and collaborations in third countries.

The first collaboration plan covered opportunities for the Port of Trieste in China, and basically mirrored the offer made to Genoa: first, participation in new logistics parks in China involving Shanghai, Ningbo and Shenzhen; second, the option for Italian enterprises to sell their products on the online platform operated by CCCC. Like the offer to Genoa's ports, the proposal was made to local businesses, although the Port of Trieste's authority would coordinate trade. 39

Unlike the case of Genoa, officials from the EASPA travelled to China to assess the areas where the logistics parks could emerge. However, the latest update from

36 Invitalia, *Lotto 1 – Centrale di Committenza per AdSP – Nuova diga foranea del porto di Genova: servizio di progettazione di fattibilità tecnica ed economica afferente all'intervento di realizzazione della nuova diga foranea*, 6 November 2019, https://gare appalti.invitalia.it/sourcing/awards/resume/id/000151-2018/idL/1.

37 'Porti: intesa Trieste con CCCC per aree industriali Cina', in *Ansa*, 5 November 2019, https://www.ansa.it/friuliveneziagiulia/notizie/2019/11/05/porti-intesa-trieste-concccc-per-aree-industriali-cina\_5db65b54-7a4a-4605-805b-536886926eb7.html.

38 Eastern Adriatic Sea Port Authority and CCCC, *Accordo di cooperazione fra Autorità di sistema portuale del Mare Adriatico Orientale – porti di Trieste e Monfalcone e China Communications Construction Company*, 23 March 2019, https://www.lavoceditrieste. net/wp-content/uploads/2019/03/Accordo\_AdSPTM-CCCC.pdf.

39 Interview with an exponent from the Port of Trieste.

the Port Authority shows that this section of the agreement has not progressed any further. In a pattern all too often seen with Chinese companies, promises are made but nothing follows. The Port of Trieste has nonetheless launched a pilot project for local wine producers to sell their goods on the online platform offered by CCCC. There is one prerequisite, however: companies wishing to avail themselves of this facility must be large enterprises. The pilot project selected ten entities that would send samples of their products to China to have them placed on CCCC's online platform. While the latter belongs to CCCC, the whole logistic chain remains entirely in the hands of its Italian counterparts, with a special role for the Port of Trieste. The project was briefly put on hold owing to the Covid-19 outbreak, but was then restarted in May 2020. 40

The part of the MoU on Chinese involvement in Italy included collaboration on the already-existing Trihub project for the renewal of the Servola and Aquilinia train stations (near Trieste), which were to be connected to the port and to function as intermodal stations. In this case, CCCC would build the stations and the Port Authority (together with its partner RFI) would manage them and pay rent to CCCC. However, this part of the deal, too, has seen little progress. The agreement was that the public bid for the construction of the stations would be launched after CCCC presented its project to the Port Authority, which would give the Chinese company tips on how to improve it. 41 This does not imply improper conduct, as there would still be an open public bid respectful of Italian and European regulations. 42 However, to this day, CCCC is yet to present such a project – and recent developments suggest that it may have lost its chance entirely. 43 One initial sign is a negative assessment of the project's feasibility – apparently, there is not enough space to develop intermodal stations44 – and a further signal is the blacklisting of CCCC by the US. A third development is the presence of a German enterprise investing in the port.

At the end of September 2020, the Hamburg-based Hamburger Hafen und Logistik AG (HHLA) acquired 50.01 per cent of the Logistic Intermodal Platform at the Port of Trieste. This arrangement for the construction and the subsequent lease for managing the platform to HHLA, which will last 30 years, signals a pivot by the Port of Trieste towards European partners and the probable end of

40 Zeno Saracino, 'Porto di Trieste, riparte il progetto dell'export vini italiani in Cina', in *Trieste News*, 6 May 2020, https://www.triesteallnews.it/?p=154583.

41 Interview with an exponent from the Port of Trieste.

42 Ibid.

43 Marco Morino, 'Porto di Trieste, maxi hub ferroviario tra Europa e Far East', cit.

44 Interview with an official from the Port Authority of Eastern Adriatic Sea.

the Chinese investment project envisioned in the MoU with CCCC of November 2019. 45 The platform in which HHLA invested is the same one that attracted the interest of CMG in 2018; ultimately, it received the required investment not from China but from Germany.

Hafen und Logistik's investment has come at a time when the European Union decided to commit more seriously, at least in theory, to its connectivity strategy Global Gateway as an (unofficial) alternative to the BRI. 46 In the words of the Chairman of the Port of Trieste Authority, if the BRI is a Chinese project, the Silk Road – intended as a set of trade routes between Asia and Europe – does not belong exclusively to anyone. Therefore, a European solution can be proposed for its development. 47 Interestingly, however, just a few months later, HHLA and COSCO concluded an agreement for the acquisition by COSCO of 35 per cent of the container terminal Tollerort GmbH (CTT) in the Port of Hamburg. German authorities have decided to mitigate the risks of the investments by COSCO by allowing it to acquire 24.9 per cent of the terminal instead of the initial 35 per cent. 48 The reduction of the shares deprives COSCO of veto power in the management of the terminal.

The final part of the MoU, which concerned collaborations in third countries, envisioned the partnering of CCCC and the Eastern Adriatic Sea Port Authority to build a sizeable intermodal rail terminal in the city of Košice, in Slovakia. This part of the agreement was close to finalisation in 2020, but there has been no confirmation since; it is likely that US sanctions on CCCC hindered that part of the collaboration as well. However, CCCC failures are not mirrored by COSCO

45 Hamburger Hafen und Logistik AG (HHLA) website: *HHLA PLT Italy*, https://hhla. de/en/company/subsidiaries/hhla-plt-italy; 'HHLA Invests in Italy's Port of Trieste', in *Hamburg News*, 15 October 2020, https://hamburg-news.hamburg/en/node/2130.

46 Keegan Elmer, 'EU's Connectivity Plan "More Sustainable" than Beijing's Belt and Road, European Official Says', in *South China Morning Post*, 27 April 2019, https://www.scmp. com/news/china/diplomacy/article/3007878/eus-connectivity-plan-more-sustainablebeijings-belt-and-road.

47 'Piattaforma: D'Agostino, non rinunciamo alla Via della Seta', in *Ansa*, 30 September 2020, https://www.ansa.it/friuliveneziagiulia/notizie/2020/09/30/piattaforma-dagost ino-non-rinunciamo-alla-via-della-seta\_94403775-0569-44de-925e-1407d0f95 e3b.html.

48 Andreas Rinke and Jan Schwartz, 'German Go-ahead for China's Cosco Stake in Hamburg Port Unleashes Protest', in *Reuters*, 26 October 2022, https://www.reuters. com/markets/deals/german-cabinet-approves-investment-by-chinas-cosco-hamburgport-terminal-sources-2022-10-26.

who in 2022 inaugurated a rail connection between Trieste and Slovenia. 49 The railway appears to be an ad-hoc connection to transport components for the Chinese company Hisense. And COSCO seems to have plans to connect the port of Trieste to Hungary as well. Although not strictly about port infrastructures, the railways connection – existing and potential – between the port of Trieste and European inland (mostly in Central and Eastern Europe) is a notable development of the BRI that involves Italy. And one that has been warmly welcomed by Zeno D'Agostino.

#### **6. Conclusions**

Two general considerations may be drawn from this review of Sino–Italian plans for jointly developing Italy's port facilities. First, the MoU signed in March 2019 was an expression of intent that, while causing great upheaval because of the highly symbolic value of the BRI and the related risks, has ended up falling short on deeds. Second, neither the Western Ligurian Sea Port Authority nor the Eastern Adriatic Sea Port Authority have opened up to Chinese investments before taking into account due-diligence considerations and following appropriate procedures. Both have couched their intentions in solid legal frameworks and limited the Chinese presence to specific projects. Neither Port Authority had the intention (or the legal authority) to cede ownership of its port to a Chinese partner or to accept an investment that would include the acquisition of majority shares of a whole port. In fact, in the case of Genoa, not only was the Chinese involvement not in the port itself but rather in the construction of a new breakwater dam but CCCC did not eventually win the public contract for it. Both port authorities have other partners and potential investors. These have not been constrained by the arrival of the Chinese nor have they been excluded from investing in the ports (as the case of HHLA shows), which points to the two port authorities' awareness of the importance of diversification.

That being said, it is hard not to see in these cases the potential unfolding of the dynamics, which have emerged elsewhere, of a slow but progressive expansion of Chinese participation either in the ports themselves or in related facilities. For both parties involved, the MoU was meant to be the first step to improving relations with China, attracting more Chinese capital and obtaining a preferential channel for Italian enterprises to access the Chinese market. The

49 Gabriele Carrer, 'La Via della Seta rientra dalla finestra? Le mosse di Cosco a Trieste', in *Formiche*, 30 June 2022, https://formiche.net/?p=1483787.

visits and proposals made by Chinese counterparts after the signing of the MoUs signal a move in that direction. The PRC's activity in both ports had the potential to be expanded in the future. The Chinese companies involved probably hoped to make a first step and then further their presence in Italian and European transport and infrastructure networks (after all, Chinese enterprises are widely present in European ports).

If there was a Chinese plan to expand in the Italian and European transport networks, this has been constrained by a growing awareness in Italy and the EU of the need to protect critical infrastructures. Italy's and the EU's rules on public procurement and investment screening limit the possibility of Chinese enterprises investing freely in national strategic assets. The Golden Power mechanism has expanded its reach over the years, and it now covers a number of sectors in which the government can block foreign investments. Its enacting, however, is entirely dependent on governmental decision and on a faulty notification system. The EU's framework on foreign direct investment (FDI) allows Brussels and member states to pool information on inbound FDI and eventually to share advice on such investments. Information sharing contributes to a more transparent awareness of and debate on the status of Chinese investments in the region. In the case of Italian ports, the EU's tool was not active yet50 but the Italian Golden Power was and a lively public debate within and outside Italy about the opportuneness of the MoU contributed to increasing scrutiny of Chinese investments in the ports of Genoa and Trieste. The debate and the attention drawn towards these two ports have most likely influenced decision-makers, who ultimately chose to take a different path – as was shown by the case of the EASPA. The timely investments by Hafen und Logistik in the Port of Trieste made it much easier for the latter to drop the option of considering the offer by CCCC, which had become fraught with risks following the US decision to blacklist the Chinese.

To sum up, the main 'takeaway' from this review of the initial implementation of the Sino–Italian MoU in support of the BRI is that whereas the latter initiative undeniably had symbolic political power it has so far had few consequences for the Italian maritime-infrastructure sector. The 'loss' of Trieste has not stopped the BRI from progressing in Italy. In October 2020, COSCO opened a new maritime line between the Port of Piraeus and Vado Ligure, linking two ports where the SOE plays a significant role. The construction of the new terminal at Vado Ligure has brought jobs and economic opportunities to the surrounding area without incurring new security risks. It must be stressed that ports cannot be sold in

50 Operational since October 2020.

Italy but only leased, and that even then the lease can be revoked for justified commercial or security reasons. In other Italian ports, the risk is that Chinese investment may end up being the only option available. If the transport sector is deemed to be sensitive and strategic, Europeans should boost the capacity of their enterprises in order to compete in it.

Risks do arise when large investments are made in strategic infrastructure by a major – and, in so many respects, problematic – power like China. In such cases, one must decide whether to adopt a risk-management or a risk-avoidance approach. Italy opted for risk management, a choice that is widely shared among Europeans – proving that despite concerns vis-à-vis the MoU, in substance the agreements did not differ from others made by European ports that did not sign on to the Belt and Road Initiative.

#### **References**

Zeno Saracino, 'Porto di Trieste, riparte il progetto dell'export vini italiani in Cina', in *Trieste News*, 6 May 2020, https://www.triesteallnews.it/?p=154583

### Nicola Bilotta

### **Chapter 2: China–Italy: An analysis of financial cooperation**

With the explosion of cross-border financial transactions, investments and industrial delocalisation, financial institutions have been compelled to expand their business to support corporate clients abroad. As entering a foreign market can be an extremely difficult exercise, financial institutions have, in addition to opening branches in other countries, been building up partnerships with local counterparts in order to mitigate risks and reduce costs. The strategic relevance of cooperation with foreign financial institutions lies in the fact that banks prefer lending through foreign affiliates that are located closer to the borrower than to those institutions' own home countries. Financial cooperation is indeed a cornerstone of international economic activity, facilitating and empowering trade, investment and business relations – and thus providing corporate firms with essential instruments with which to operate in foreign markets. 1

Italy's and China's growing financial cooperation fits within this overall picture. While Italy constitutes a small part of China's integration into the global economy and the global financial system, it contributes to the latter's consolidating its status as a global economic superpower. 2

Over the last six years, the two countries' financial cooperation has grown dramatically. Through high-level meetings, informal agreements and working groups, they have developed deep financial ties. A turning point was the signing in 2014 of 20 commercial agreements, in which strengthening financial cooperation was a key driver. A further step was pursued in the wider framework of the MoU between the Italian and the Chinese governments, signed in March

1 An extensive literature on why domestic banks expand abroad exits. See, for example, Eugenio Cerrutti, Catherine Koch and Swapan-Kumar Pradhan, 'Banking Across Borders: Are Chinese Banks Different?', in *BIS Working Papers*, No 892 (October 2020), https://www.bis.org/publ/work892.htm; Claudia M. Buch, 'Why Do Banks Go Abroad: Evidence from German Data', in *Kiel Working Papers*, No. 948 (September 1999), http://hdl.handle.net/10419/17810; Richard A. Brealey and Evi C. Kaplanis, 'The Determination of Foreign Banking Location', in *Journal of International Money and Finance*, Vol. 15, No. 4 (August 1996), p. 577–597.

2 Eugenio Cerutti and Haonan Zhou, 'The Chinese Banking System: Much More than a Domestic Giant', in *VoxEU*, 9 February 2018, https://voxeu.org/node/62550.

#### 48 Nicola Bilotta

2019. The MoU included a specific section on 'Financial Cooperation': '[…] The Parties will encourage the partnerships between the respective financial institutions to jointly support investment and financing cooperation, at bilateral and multilateral level and towards the third Countries, under the framework of [the] Belt and Road Initiative.' 3

A number of separate institutional and commercial agreements were signed within the framework of the MoU. For instance, Italy's sovereign wealth fund, Cassa Depositi e Prestiti (CDP), partnered with Bank of China (BoC) to support Italian enterprises in the Chinese market. The agreement also promised the implementation of an issuance plan for debt securities known as 'Panda Bonds'. In addition, CDP's subsidiary SACE-SIMEST, an agency specialising in supporting Italian companies in foreign markets, signed a technical MoU with two Chinese firms. Intesa Sanpaolo, Italy's second-largest banking company holding (BCH), struck an agreement with the Municipality of Qingdao to strengthen commercial relations. During the First China–Italy Finance Dialogue of June 2019, the Export-Import Bank of China (EXIM Bank) signed two further important MoUs in the field of financial cooperation. The first was with UniCredit, Italy's largest BCH, to promote deeper cooperation between Italian, Chinese and Central/Eastern European companies. The second was an additional initiative with the already-mentioned SACE-SIMEST to support the expansion of Italian and Chinese enterprises into each other's markets.

While Italy's joining the BRI carried significant symbolic power, the MoUs between their financial entities were for the most part a point of arrival of pre-existing trends. Furthermore, they are wide and ordinary frameworks of cooperation, simply adding the 'BRI' badge to a financial collaboration that already existed and that would have continued even without the MoU. While they may have fostered a more positive environment in which business relations between the countries could be strengthened, a preliminary analysis of macrotrends and developments in the framework of the BRI-related agreements indicates that China–Italy financial cooperation has advanced only modestly since their signing.

3 Italy and China, *Memorandum of Understanding Between the Government of the Italian Republic and the Government of the People's Republic of China on Cooperation within the Framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative*, 22 March 2019, http://www.governo.it/sites/governo.it/files/Memorandum\_ Italia-Cina\_EN.pdf.

The Covid-19 pandemic has certainly affected potential developments in Italy–China commercial relations, forcing companies to slow down investment plans. However, turning framework agreements into sustained cooperation would have been challenging even in ordinary times. Another reason for slow progress is the change in the government coalition ruling Italy that occurred in September 2019. The Democratic Party (PD), which has replaced the League as the junior party in the Five Star Movement-led government, is evidently keen on improving ties with China but is also sensitive to ensuring that this goal is achieved within the Euro–Atlantic framework. This shift has grown even more marked with the recently established government led by former European Central Bank (ECB) President Mario Draghi.

That said, the BRI-related MoUs do raise some concerns. One risk is that most BRI-related projects are financed by Chinese banks with little support from local or international financial actors – feeding fears about the financial conditions applied to Chinese lending and funding, and about China's unilateral gains from such arrangements.

Moreover, borrowing from two of China's 'policy' banks – China Development Bank and EXIM Bank – could produce market distortions as these financial entities benefit from Chinese public finance. However, the framework of the institutional BRI-MoU mitigates this set of risks, as it gives the Asian Infrastructure Investment Bank (AIIB), a multilateral development bank, a primary role instead of relying on the two Chinese policy banks. The AIIB's transparency standards, while not optimal, are generally considered vastly superior to those of other Chinese development banks.

A third risk is that the BRI could create debt traps for recipient states (and for China itself). Yet, this is not the case for Italy. Only a tiny share – about 7 per cent – of Italy's national debt is held by entities based outside the Eurozone, minimising potential risks even if the country were to increase its overall exposure to China. This consideration also applies to the issuance of the Panda bonds, which represented merely 0.65 per cent of CDP's total bond funding in 2019. 4

A final risk is that increased financial cooperation between Chinese and Italian financial entities could facilitate Chinese investments – and, consequently, influence – in sensitive/strategic Italian assets. However, this danger is mitigated by domestic and external factors: Italy, as a member of the European Union, has

4 Cassa Depositi e Prestiti (CDP), *Annual Report 2019*, May 2020, p. 42, https://www. cdp.it/resources/cms/documents/RFA-12.2019%20Gruppo-CDP\_UK.pdf.

in place effective mechanisms of protection – although some of these are yet to be tested.

Therefore, the Italy–China MoUs in the field of financial cooperation do not, for the time being, justify concerns related to the risks that are generally associated with the BRI. A more realistic negative consequence of the MoUs is that Italy's membership in the BRI could undermine a common EU approach to China, ultimately lessening the Union's negotiating power.

#### **1. Intesa Sanpaolo**

Intesa Sanpaolo has been present in China since 1981 with a representative office in Beijing, the first Italian bank to establish an office in the People's Republic. Besides the Beijing office, it also maintains an international SPOKE branch – defined as a branch that does not offer the full array of a financial institution with in-house staff but rather relies on nearby branches to provide those services – in Shanghai.

Historically, Intesa Sanpaolo has worked extensively with its Chinese counterparts to increase its presence in China. In 2005, it set up a joint venture with SIMEST – a subsidiary of CDP that supports Italian companies abroad – and BoC, which was called the Shanghai Sino-Italy Business Advisory Company (SIBAC). SIBAC offers advice and assistance to Italian companies seeking to invest in China. 5 A year later, Intesa Sanpaolo partnered with China Investment Bank and EXIM Bank to establish Fondo Mandarin Capital Partners, a privateequity fund created to support Italian companies investing in China and vice versa. 6

In 2007, Intesa Sanpaolo and its subsidiary Eurizon were particularly active. Eurizon entered the Chinese market by acquiring 19.9 per cent of share capital in Union Life, a Top-25 insurance company in the Chinese market (in 2014, Intesa Sanpaolo sold its stake in Union Life for 165 million euro). 7 Eurizon also

5 Intesa Sanpaolo, *Agreement for the Acquisition of 19.99 % of Qingdao City Commercial Bank in China Signed*, 12 July 2007, https://group.intesasanpaolo.com/en/investorrelations/press-releases/2007/07/CNT-04-000000001AB73.

6 Mandarin Capital Partners, *Un fondo di private equity per una maggior integrazione tra i sistemi economici italiano e cinese*, April 2007, https://www.assolombarda.it/fs/20074 20164843\_48.pdf.

7 Intesa Sanpaolo Vita, *Intesa Sanpaolo Vita perfeziona la cessione del 19,9 % della compagnia vita cinese Union Life*, 5 June 2015, https://www.intesasanpaolovita.it/chisiamo/sala-stampa/comunicati-stampa/intesa-sanpaolo-vita-cede-union-life; S&P

bought 49 per cent of Penghua Fund Management, one of China's largest assetmanagement firms with 74.5 billion euro of assets under management. 8 Intesa Sanpaolo purchased 19.99 per cent of the Qingdao City Commercial Bank, becoming the first Italian financial institution to make a direct investment in a Chinese bank. Qingdao City Commercial Bank is a regional bank with 141 domestic branches and 4,117 employees. 9

In 2014, Intesa Sanpaolo and EXIM Bank signed a strategic collaboration agreement to support enterprises from the two countries expanding access to each other's markets. 10 In 2016, the Italian bank launched a pilot of its subsidiary Yi Tsai (*Talento Italiano* – 'Italian Talent') – a wealth-management firm – in the Qingdao Municipality, which was designed as a wealth-management Pilot Zone by China's central government. Yi Tsai is fully owned by Intesa Sanpaolo through three different business areas of the bank: 55 per cent Intesa Sanpaolo, 25 per cent Fideuram and 20 per cent Eurizon. The company offers multi-product and multi-brand company products, privileging the distribution of Penghua FM's and Eurizon's products.

Finally, in March 2019, Intesa Sanpaolo signed an MoU with the Municipality of Qingdao to confirm the Italian bank's commitment and investments in the field of wealth-management activities. The MoU states that the Qingdao Government will support Intesa Sanpaolo to establish a securities company, in which Intesa will participate with a 51 per cent capital share, which will help Yi Tsai launch its operations and expand the offer of investment solutions. In December 2019, Yi Tsai received a Fund Distribution Licence from the local authorities in Qingdao, which allows it to offer fund sales service. Intesa Sanpaolo is the first foreign bank authorised to offer this range of financial products in China. According to

Global, *China's Top 25 Insurers*, November 2017, https://www.spratings.com/docume nts/20184/0/China%27s+Top+25+Insurers/5f4d65c5-130c-4027-83dd-dd3eec5b8796.

8 Eurizon Asset Management website: *Penghua Fund Management*, https://www.eurizon capital.it/pages/penghua-fund-management-en.aspx.

9 In December 2019, the bank allocated 169 billion renminbi in gross loans (24 billion US dollars), of which 41 billion went to retail customers and 85 billion to corporate ones. It held 231 billion renminbi (33 billion US dollars) in deposits – 117 billion of them in corporate deposits and 56 billion in retail deposits. Bank of Qingdao, *2020 Interim Report*, 25 September 2020, http://en.qdccb.com/images/hg\_dqgg/2020/09/ 25/322274D9E76615C02D05C48CF920869B.pdf.

10 Intesa Sanpaolo, *Intesa Sanpaolo and China Eximbank Sign a Strategic Collaboration Agreement*, 15 October 2014, https://group.intesasanpaolo.com/en/newsroom/pressreleases/2014/10/CNT-04-0000000223DFA.

Carlo Messina, its Chief Executive Officer (CEO), the bank also plans to expand its wealth-management activities into other provinces. 11

Intesa Sanpaolo's strong presence in the Qingdao Municipality has been driven by the strategic position of the city, which is China's seventh-largest port and its second-largest one for foreign trade. A major node on the 21st-Century Maritime Silk Road, Qingdao has experienced remarkable economic progress, with a gross domestic product (GDP) of around 1,200 billion renminbi (146 billion euro) in 2018. 12 The development of Qingdao's port and complementary economic activities have made the city a key hub for China–Europe trade.

A link between the procurement of the Fund Distribution Licence and the signature of the MoU between Intesa Sanpaolo and the Municipality of Qingdao in March 2019 is undeniable. Nevertheless, the Italian bank has been expanding its activities in China for over a decade, building up its business in the country step by step as many other foreign financial institutions have. Following China's gradual regulatory reforms, since 2017 several foreign institutions – among them, J.P. Morgan, American Express and PayPal – have started to gain more open access to the Chinese domestic market. 13 The expansion of Intesa Sanpaolo in this arena is, then, a positive development, providing the Italian bank with greater access to a very large market.

#### **2. UniCredit**

UniCredit has had a representative office in Beijing since 1982 and a branch in Shanghai since 1996. In November 2013, UniCredit and UnionPay, China's biggest card network, signed a collaboration agreement to enable the use of Chinese credit cards in Italy either for business purposes or tourism. In April 2019, the two companies agreed to support the expansion of UnionPay's activities in Central and Eastern European (CEE) countries. Around the same time, UniCredit signed an MoU with EXIM Bank also aimed at developing business opportunities between Chinese enterprises and Italian and CEE firms. The Italian bank has invested extensively in Central/Eastern Europe, where it

11 Intesa Sanpaolo, *Intesa Sanpaolo First Foreign Wealth Manager in China through Own Subsidiary*, 29 December 2019, https://group.intesasanpaolo.com/en/newsroom/news/ all-news/2019/wealth-management--intesa-sanpaolo-first-foreign-bank-licensed-i.

12 CEIC website: *China CN: GDP: Shandong: Qingdao*, https://www.ceicdata.com/en/ china/gross-domestic-product-prefecture-level-city/cn-gdp-shandong-qingdao.

13 See: Nicholas R. Lardy and Tianlei Huang, 'China's Financial Opening Accelerates', in *PIIE Policy Briefs*, No. 20–17 (December 2020), https://www.piie.com/node/14812.

controls seven major foreign-owned subsidiaries (which account for around 8 per cent of its total assets), showing its strategic interest in fostering business synergies with Chinese financial institutions operating in the area.

**Table 2.1:** UniCredit subsidiaries and their assets

Source: Figures calculated by the author from the annual reports as at December 2019.

Alongside CEE countries, the Balkans is another region in which UniCredit has invested in cooperation with EXIM Bank. After all, China has deep economic ties with the region: the Balkans have thus far been at the core of the BRI's investments in Europe. Between 2011 and 2019, the total infrastructure project value in the framework of the BRI in the Balkans amounted to 6.226 billion euro – of which 3.041 billion was allocated in Bosnia and Herzegovina, 2.530 billion in Serbia and 249 million in Albania. 14 EXIM Bank has been a major player in financing BRI investments globally. According to the European Union Institute for Security Studies, the Chinese development bank tends to lend directly to governments for infrastructure projects, providing 85 per cent of the needed capital while the remaining share is covered by the financial institutions of the recipient, or other, countries – thereby also producing business opportunities for other financial institutions. 15

14 James Kynge, 'What Italy Stands to Gain by Endorsing China's Belt and Road', in *Financial Times*, 7 March 2019, https://www.ft.com/content/e2b7322c-4086-11e9 b896-fe36ec32aece.

15 Plamen Tonchev, 'China's Road: Into the Western Balkans', in *EUISS Briefs*, No. 3/2017 (February 2017), p. 4, https://www.iss.europa.eu/node/1293.

In October 2020, UniCredit announced an important MoU with Industrial and Commercial Bank of China (ICBC) to enhance their mutual cooperation in the PRC, Italy, Germany, Austria and CEE. 16 UniCredit has two major foreign-owned subsidiaries (FOS) in Germany and in Austria, being the fourth and the third largest banks in those respective countries, and they comprise almost one third of UniCredit's annual pre-tax profits. Moreover, also in October 2020, UniCredit together with China Investment Corporation and Investindustrial launched the China–Italy Industrial Cooperation Fund (CIIF). The partnership has an initial capital of 600 million euro, which will primarily support Italian small and medium-sized enterprises (SMEs) in China. 17

In line with pre-existing collaboration initiatives, the BRI-related MoUs signed by UniCredit and its Chinese counterparts appear to be driven by two main complementary goals: first, improving the range of instruments available to support Italian businesses in China; second, strategically consolidating the Italian bank's collaboration in key foreign markets in order to further explore potential sources of revenue.

#### **3. Cassa Depositi e Prestiti and SACE-SIMEST**

Cassa Depositi e Prestiti, or CDP, is a joint stock company under public control. The Italian Ministry of Economy and Finance (MEF) owns 82.77 per cent of CDP while the remaining stake is held by several Italian bank foundations. For the purpose of this analysis, it is worth underlining that CDP has recently experienced a reorganisation of its activities. In 2012, the company purchased 100 per cent of SACE18 from the MEF and 76 per cent of SIMEST19 from the

16 UniCredit, *UniCredit and Industrial and Commercial Bank of China (ICBC) Announce Business Cooperation Agreement*, 22 October 2020, https://www.unicreditgroup.eu/ en/press-media/press-releases/2020/unicredit-e-industrial-and-commercial-bankof-china--icbc--annun.html.

17 UniCredit, *Investindustrial, China Investment Corporation and UniCredit Announce the Launch of CIICF, a Fund Investing in Italian Mid-Market Companies*, 5 October 2020, https://www.unicreditgroup.eu/en/press-media/press-releases/2020/investind ustrial--china-investment-corporation-e-unicredit--annu.html.

18 SACE offers export-credit services, credit insurance, protection of investments carried out abroad, financial guarantees, bonds and factoring.

19 SIMEST is involved in promoting the international expansion of Italian businesses by taking equity stakes and providing subsidised credit and capital grants.

Ministry of Economic Development (MISE). 20 However, in the summer of 2020 the Italian Government decided to bring SACE back under the direct control of the MEF while SIMEST, of which SACE owns 76 per cent of shares, will be sold to CDP.

CDP is highly active in China. More than 60 firms in which the company has direct or indirect participation are active there,21 while Chinese companies have invested more than 2.5 billion euro in subsidiaries of CDP. 22 Moreover, the company has developed several partnerships with Chinese financial counterparts – such as BoC, China Development Bank and EXIM China. 23 CDP also struck an MoU with Intesa Sanpaolo in 2018 and UniCredit in 2019 to support the growth of Italian enterprises that operate in the Chinese market with specially designed forms of financing. A first step has been the allocation of 300 million euro to UniCredit and 200 million euro to Intesa Sanpaolo to establish a revolving credit facility – which is a form of credit that allows borrowers to draw down, repay or withdraw again. 24

20 CDP, *CDP Approves the Exercise of the Option to Acquire SACE and SIMEST*, 27 September 2012, https://www.cdp.it/sitointernet/page/en/cdp\_approves\_the\_ exercise\_of\_the\_option\_to\_acquire\_sace\_and\_simest?contentId=CSA11087.

21 CDP, *Cresci con noi in Cina. Soluzioni per le imprese*, October 2019, https://www.cdp. it/resources/cms/documents/CDP\_Cresci\_con\_noi\_in\_Cina.pdf.

22 In 2014, State Grid Corporation of China bought 35 per cent of CDP Reti – an investment vehicle established in October 2012 that manages Snam (31.35 per cent), Italgas (26.04 per cent) and Terna (29.85 per cent) – for 2 billion euro. CDP Reti is currently owned by CDP (59.1 per cent), State Grid Europe Limited (35 per cent) and other Italian institutional investors (5.9 per cent). The same year, Shanghai Electric Corporation purchased 40 per cent of Ansaldo Energia for 400 million euro. In 2015, China Investment Corporation got 7 per cent of F2i SGR's capital and in 2017 Nuo Capital acquired 10 per cent of Elite's capital.

23 CDP, *Cassa Depositi e Prestiti and Bank of China: A Partnership Agreement to Contribute to the Growth of Italian Enterprises in China*, 23 March 2019, https:// www.cdp.it/sitointernet/page/en/cassa\_depositi\_e\_prestiti\_and\_bank\_of\_china\_a\_ partnership\_agreement\_to\_contribute\_to\_the\_growth\_of\_italian\_enterprises\_in\_ china?contentId=CSA21003.

24 UniCredit, *Cassa Depositi e Prestiti and UniCredit Sign Agreement to Support the Internationalisation of Italian Companies in China*, 21 February 2019, https://www. unicreditgroup.eu/en/press-media/press-releases/2019/cassa-depositi-e-prestitie-unicredit-siglano-accordo-per-il-sup.html; Intesa Sanpaolo, *Cassa Depositi e Prestiti and Intesa Sanpaolo: An Agreement Is Signed to Strengthen Support for the Internationalisation of Italian Companies in China*, 27 August 2018, https://group.int esasanpaolo.com/en/newsroom/press-releases/2018/08/CNT-05-0000000511414.

#### 56 Nicola Bilotta

In the framework of the China–Italy MoU of March 2019, CDP agreed to an issuance plan for debt securities known as Panda bonds and the structuring of a co-financing programme for Italian companies investing in China. 25 'Panda bonds' refers to a bond denominated in renminbi issued by a foreign organisation in China. The funding obtained by the sales of these bonds is, in this case, earmarked for financing the expansion and growth of Italian enterprises in China. 26 These kinds of securities help international lenders to offer a financial product to domestic renminbi investors, thereby entering the large and lucrative Chinese domestic market. Italy was not the first player to issue Panda bonds – the International Finance Corporation and the Asian Development Bank launched this kind of bond in 2005, followed by sovereigns as well as by private corporations such as the German carmaker BMW. Furthermore, Poland, Hungary, British Columbia, the Emirate of Sharjah, South Korea, Portugal and the Philippines all issued Panda bonds before Italy. The issuance of Panda bonds by sovereign entities is still in the pilot phase, representing just a small – if not economically irrelevant – portion of the total bonds issued by individual countries. For example, in 2017 Hungary issued 122 million euro of Panda bonds, against the 25.6 billion euro total gross bond issuance for that year. However, Panda bonds have a powerful symbolic value.

In Europe, Poland was the first country to issue Panda bonds, in 2016, while Portugal was the first member of the Eurozone to do so. Notably, Italy's Panda bonds differ from those of other European countries. The Portuguese Government stated that the funds gained from the sales of its Panda bonds would be used to diversify its investor base as well as to service its national debt. The Hungarian Government stressed that this instrument was a great opportunity to diversify its funding sources. Italy has adopted a more pragmatic approach, raising money in the Chinese capital markets to support and finance Italian enterprises' expansion into China. Success will mainly depend on two factors: the ability of CDP to allocate the funds to Italian firms and to efficiently manage the risks associated with the issuance of these securities.

25 CDP, *Cassa Depositi e Prestiti and Bank of China: A Partnership Agreement to Contribute to the Growth of Italian Enterprises in China*, cit.

26 CDP, *Finanzia la tua crescita in Cina con i proceeds dei Panda Bond*, July 2020, https:// www.cameraitacina.com/sites/default/files/cdp\_presentazione\_aziende\_panda\_bo nd\_new\_20200727.pdf.

**Table 2.2:** Summary of Panda bonds' issuance in Europe

Source: produced by the author.

**Table 2.3:** Italian companies operating in China financed through Panda bonds

Source: CDP.

CDP's Panda bonds are at a fixed rate (which is offered at good interest rates to attract investors), unsubordinated27 and unsecured. 28 According to the MoU, CDP could issue up to 5 billion renminbi (733 million US dollars) in Panda bonds. 29 In July 2019, CDP issued the first tranche of Panda bonds for 1 billion renminbi (146 million US dollars, with a three-year maturity at a 4.5 per cent coupon rate). CDP has already allocated more than half of the total amount available from the first sales. 30

27 This means that this type of bond must be repaid before any other form of debt. So, its holders have the first claim over a company's assets or earnings if the debtor becomes bankrupt or insolvent.

28 This type of bond is backed by the issuer's promise to repay its debt.

29 CDP, *Cassa Depositi e Prestiti and Bank of China: A Partnership Agreement to Contribute to the Growth of Italian Enterprises in China*, cit.

30 CDP, *Growth on the Chinese Market and Investment in New High-Tech Plants and Machinery for the Production of Electric Vehicle Parts for the Local Market*, 21 January

The amount of Panda bonds issued by CDP has so far been relatively small – if not irrelevant – in comparison to Italy's gross public-debt issuance. Its modest size is even more striking if compared with CDP's position in terms of bond funding. In December 2019, the company's bond funding amounted to 19.641 billion euro, of which Panda bonds represented only 0.65 per cent. 31 Even if CDP issued 5 billion renminbi – the maximum amount agreed in the MoU – in one year, the figure would represent only around 3 per cent of its total bond funding. Since the first tranche of Panda bonds has been so successful, according to MilanoFinanza, CDP is planning to issue another tranche in the near future. 32

In the framework of the commercial agreements signed in March 2019, SACE-SIMEST finalised an MoU with China Export and Credit Insurance Corporation to reduce the information asymmetry on shared projects and improve its share of good practice and expertise to operate in China. 33 It also signed an MoU with SUMEC to support Italian SMEs in the Chinese market. Specifically, SACE-SIMEST will provide financial and insurance coverage to Italian enterprises that have obtained contracts from SUMEC. The aim is to reach 1 billion euro in the next three years. 34 A few months after the signing of the March 2019 MoU, SACE-SIMEST also signed a sectorial MoU with EXIM Bank seeking to expand business cooperation between the two countries, including potential opportunities arising from the BRI. 35 These agreements followed previous

31 CDP, *Annual Report 2019*, cit., p. 42.

2020, https://www.cdp.it/sitointernet/page/en/cdp\_finances\_the\_growth\_of\_the\_ eurogroup\_laminations\_group\_in\_china?contentId=PRG26861; CDP, *CDP finanzia la crescita del Gruppo italiano Stefano Ricci in Cina*, 28 July 2020, https://www.cdp.it/ sitointernet/page/it/cdp\_finanzia\_la\_crescita\_del\_gruppo\_italiano\_stefano\_ricci\_in\_ cina?contentId=CSA29669.

32 Andrea Pira, 'Cdp studia il nuovo Panda bond', in *MilanoFinanza*, No. 205 (16 October 2020), p. 21.

33 SACE, *SACE SIMEST (CDP Group) and SINOSURE to Support Trade and Investment between Italy and China*, 23 March 2019, https://www.sacesimest.it/en/media/ sace-simest-(cdp-group)-and-sinosure-to-support-trade-and-investment-betw een-italy-and-china.

34 SACE, *SACE SIMEST (CDP Group) and SUMEC Strengthen Cooperation to Support Trade Opportunities with Italian Companies*, 23 March 2019, https://www.sace.it/en/ media/sace-simest-(cdp-group)-and-sumec-strengthen-cooperation-to-supporttrade-opportunities-with-italian-companies.

35 SACE, *SACE SIMEST (CDP Group) and CEXIM to Support Trade and Investment between Italy and China*, 10 July 2019, https://www.sace.it/en/media/agreement-sacesimest-cdp-cexim.

synergy with BoC to support Chinese companies that import from Italy – with a particular focus on the Chinese civil-helicopter industry – signed in 2018. 36

SACE-SIMEST has further advanced the range of instruments to support Italian enterprises in China in line with the potential growth provided by the Chinese market, which is underexploited by Italian exporters. Even though Italy is the second-largest manufacturer in Europe and one of the top European exporting countries, its sales to China were just 14.4 billion US dollars in 2019 (2.63 per cent of its total exports). Meanwhile, 15 per cent of Germany's total export was directed to China. Despite the various MoUs, SIMEST's exposure in China was 6.93 per cent (547 million euro) in 2018 and 6.51 per cent of its total portfolio (545 million euro) in 2019. 37 These figures point to a continuing downward trend: in 2017 The agency's exposure in China was 7.9 per cent (514 million euro) of its total portfolio.

#### **4. China's commercial and development banks in Italy**

China's and Italy's financial cooperation involves Chinese financial institutions in the Italian domestic market. In 1998, BoC opened its first Italian branch in Milan; the following year, it opened a second branch in the city and, in 2013, another one in Rome. BoC is the most active Chinese commercial BCH in Italy, offering banking services and products to both retail and corporate customers. In 2015, ICBC opened a branch in Milan, followed a year later by China Construction Bank; the Bank of Communications has an office in Rome. These branches provide basic banking services to corporate clients only. 38 As they are consolidated in the parent's foreign subsidiary in Europe,39 no information is publicly available on the extent of their activities in Italy. According to officials from the Italian offices of ICBC and BoC, the two banks offer their services to Italian and Chinese clients in both countries' markets.

36 SACE SIMEST, *SACE SIMEST (CDP Group) and Bank of China sign MoU to enhance cooperation between Italy and China*, November 2018, https://www.sacesimest.it/en/ media/sace-simest-(cdp-group)-and-bank-of-china-sign-mou-to-enhance-cooperat ion-between-italy-and-china

37 SACE-SIMEST annual financial statements 2018 and 2019.

38 Associazione italiana banche estere (AIBE) website: *Bank of China*, https://aibe.it/ ?p=714.

39 ICBC's, Bank of Communication's, and China Construction Bank European headquarters are registered in Luxembourg.

The presence of Chinese FOS in Italy could have played a role in supporting Chinese enterprises in participating in mergers and the acquisitions of Italian companies. Unsurprisingly, the establishment of Chinese branches in Italy occurred in the period 2013–16, when Chinese investments in the country and in Europe peaked. As previously mentioned, the expansion of domestic banks in a foreign nation's market aims at supporting an increased commitment of their corporate customers to that country. 40

Chinese foreign branches in Italy could also help Beijing to pursue its objective of a more international renminbi, although Italy is not a relevant clearing hub in Europe. 41 There has been no significant progress in the role of the renminbi in the Italian market. While Bank of Italy created a portfolio in renminbi for its foreign reserves in August 2018,42 the decision seems to have been driven by a global trend and by the increased global role of China in the world economy. Indeed, in 2018 other major European central banks – such as the German Bundesbank and the ECB itself – started holding foreign reserves in renminbi. By December 2018, only 1.27 per cent of Bank of Italy's net foreign-currency assets were denominated in renminbi. 43

The signing of the MoU in support of the BRI in March 2019 does not seem to have brought any change. China's two main policy-development banks – China Development Bank and EXIM Bank – usually provide most of the BRI infrastructure loans, yet the two credit giants currently have no offices in Italy. That said, both development banks were actively working with Italian counterparts before 2019. In 2009, China Development Bank struck an agreement

40 See: Nicola Bilotta, 'Chinese Banks and Foreign Owned Subsidiaries Eye Latin American Markets: A New Challenge for the US?', in *IAI Commentaries*, No. 18|61 (October 2018), https://www.iai.it/en/node/9655.

41 See: Laura-Marie Töpfer, 'China's Integration into the Global Financial System: Toward a State-led Conception of Global Financial Networks', in *Dialogues in Human Geography*, Vol. 8, No. 3 (November 2018), p. 251–271; Sarah Hall, 'Rethinking International Financial Centres through the Politics of Territory: Renminbi Internationalisation in London's Financial District', in *Transactions of the Institute of British Geographers*, Vol. 42, No. 4 (December 2017), p. 489–502.

42 Bank of Italy, *The Bank of Italy Has Decided to Create a Portfolio in Renminbi as Part of Its Foreign Reserves Management*, 28 August 2018, http://www.bancaditalia.it/media/ comunicati/documenti/2018-02/cs-2018.08.28-china.pdf.

43 Bank of Italy, *Composition of Reserves*, 11 April 2019, https://www.bancaditalia.it/ compiti/riserve-portafoglio-rischi/composition\_reserves.pdf.

with Mediobanca;44 this led a year later to the establishment of Fondo Mandarin Capital Partners II, which represented a further step in cooperation following the creation of Fondo Mandarin Capital Partners. The new entity, which operates under Chinese law (its predecessor came under Luxembourgish law), manages funds of 1.2 billion euro, guaranteed by China Development Bank. 45

In 2013, China Development Bank together with Invitalia – the National Agency for Inward Investment and Economic Development, owned by the MEF – cosigned a document that provided Chinese businesses with key guidelines on how to invest in Italy. 46 As previously mentioned, in the framework of the 2019 MoU, China Development Bank partnered with CDP – but the two actors already had a history of cooperation. In 2014, they signed a bilateral MoU to increase cooperation in infrastructure, export finance, etc. through periodic meetings; three years later, they created the Sino-Italian Co-Investment Fund – with capital of 100 million euro – aimed at investing in SMEs from both countries. 47

As indicated in the 2019 MoU, another Chinese development bank that is supposed to have a key role in the future of Italy–China financial cooperation is the Asian Infrastructure Investment Bank. 48 Established in 2015, the AIIB is a multilateral development bank of which Beijing is the largest shareholder with 26.5 per cent of voting power, followed by India (7.6 per cent) and Russia (6.0 per cent). European countries are also members of the AIIB – Germany (4.2 per cent), France (3.2 per cent), the UK (2.9 per cent) and Italy (2.7 per cent). At the end of 2019, the bank recorded 10.08 billion euro in cumulative investments for 63 projects – up from 6.2 billion euro in 2018. 49 Thus far, the AIIB has had a focus on Asian development – mostly co-financing projects led by other multilateral

44 Mediobanca, *Mediobanca – China Development Bank*, 6 July 2009, https://www.med iobanca.com/static/upload/ita/italia\_cina\_eng.pdf.

45 Alfredo Sessa, 'Mandarin al raddoppio per nuovi investimenti', in *Il Sole 24 Ore*, 6 October 2018, https://st.ilsole24ore.com/art/economia/2010-10-06/mandarinraddoppio-nuovi-investimenti-222032.shtml.

46 See: Invitalia, *Investimenti Italia-Cina, si apre una nuova fase*, 16 May 2013, https:// www.invitalia.it/chi-siamo/area-media/notizie-e-comunicati-stampa/investimenti-ita lia-cina-si-apre-una-nuova-fase.

47 CDP, *CDP in Beijing: New Sino-Italian Co-Investment Fund*, 16 May 2017, https:// www.cdp.it/sitointernet/page/en/cdp\_in\_beijing\_new\_sinoitalian\_coinvestment\_f und?contentId=PRG20870.

48 Italy and China, *Memorandum of Understanding*…, cit., p. 3.

49 Asian Infrastructure Investment Bank (AIIB), *2019 AIIB Annual Report*, July 2020, https://www.aiib.org/en/news-events/annual-report/2019/home/index.html.

development banks. 50 In 2018, the bank showed a willingness to expand its activities to include non-regional members if their investments benefited Asia by strengthening cross-country connectivity or renewable-energy generation. 51 According to the AIIB's latest financial statements, its gross loan investments – in terms of both sovereign-backed and non-sovereign-backed loans – allocated in non-Asian countries decreased from 6.9 per cent of its total borrowing in December 2019 to 3.9 per cent in September 2020. Thus far, the bank has not announced any investment in Italy or in any other EU country. 52

The Italian Government reportedly underlined the role of the AIIB in the BRI in Italy in order to counterbalance criticisms from the European Commission and the United States (US). In contrast to other Chinese development banks, which have been strongly criticised for the opaqueness of their governance and lending policy, the AIIB enjoys multi-stakeholder governance. 53 Even though most decisions require a majority of no less than three-quarters of the total voting power, providing China with a de facto veto, European countries together have 23.9 per cent of the total voting power, implying that they may also have a veto power if they act together. Nevertheless, concerns about AIIB's governance persist. The bank has a confused governance structure that gives too much power to its president (always a Chinese national) – with no independent supervision – and does not guarantee sufficient transparency and accountability. 54

#### **5. Conclusion**

The MoU and the associated sectoral agreements in the field of financial cooperation are broad but also vague: the most that can be said of them is that they represent a basis for further cooperation.

Whatever progress we have observed until now mainly follows a path of collaboration begun several years before the signing of the MoU, which by

50 Korinna Horta, 'The Asian Infrastructure Investment Bank (AIIB). A Multilateral Bank where China sets the Rules', in *Heinrich Boll Foundation Publication Series on Democracy*, No. 52 (April 2019), p. 11, https://www.boell.de/en/node/43097.

51 AIIB, *Strategy on Financing Operations in Non-Regional Members*, 24 February 2018, https://www.aiib.org/en/policies-strategies/strategies/financing-operations.html.

52 AIIB website: *Approved Projects*, https://www.aiib.org/en/projects/approved/ index.html.

53 Davide Ghiglione, Rachel Sanderson and James Kynge, 'Italy Eyes Loans from Chinaled Development Bank', in *Financial Times*, 15 March 2019, https://www.ft.com/cont ent/29f4814c-467e-11e9-a965-23d669740bfb.

54 Korinna Horta, 'The Asian Infrastructure Investment Bank (AIIB)', cit., p. 18–19.

no means points to a different pattern from those visible in other European countries. No major development has occurred since the signing of the MoU of March 2019, nor have Italian institutions received any investment strictly related to the BRI. The impact of the Covid-19 pandemic, which has disrupted the world economy and therefore also strongly undermined potential developments in Italy–China cooperation, should obviously be factored in. Another event that has slowed progress is the change in the coalitions ruling Italy since March 2019, which has brought into power governments more sensitive to EU and US concerns.

Officials from Italian trade agencies contend that they have observed a shift towards greater prudence in Italy's relations with China. By contrast, officials from Italian private financial institutions suggest an underlying continuity in their business strategy towards China under the old and new ruling coalitions. 55 Such divergent perceptions could be the result of the different objectives pursued by public and private institutions: the former directly answer to a government's industrial and foreign-policy strategy; the latter follow market dynamics and long-term business strategy, being however also influenced by the government's policy direction. The case of UniCredit is enlightening. Despite Covid-19 and the establishment of a new government, in 2020 the Italian bank enhanced its partnerships with its Chinese counterparts. As a pan-European bank featuring two US investment-management corporations among its largest shareholders,56 UniCredit works to improve its network abroad for its corporate customers. Arguing that the bank's partnership with its Chinese counterparts could threaten Italy's national interests is, in these terms, quite a stretch. Nor can it be argued that Intesa Sanpaolo's procurement of a Fund Distribution Licence could damage Italy's national interests (quite the contrary).

Moreover, whereas MoU agreements involving critical infrastructures or strategic industries are subject to potential economic and political risks, the types of partnerships established by Italian private banks and trade agencies with Chinese companies are fairly standard arrangements aimed at providing greater financial support to corporate customers at home and abroad. One issue of concern around the BRI is that most of its projects are mainly financed by Chinese banks with little support from local or international financial actors. However, the Italy–China MoU emphasises the role in this regard of

55 Interviews with representatives from government and private sector.

56 BlackRock Group (5.075 per cent), Capital Research and Management Company (5.022 per cent).

the AIIB – whose transparency standards, while not optimal, are generally considered superior to those of other Chinese development banks. More broadly speaking, Italy's approach to BRI-related projects is that of selecting mechanisms that would prevent the market distortions potentially arising from borrowing from Chinese state-owned commercial banks and policy banks. Looking at the projects approved in European-neighbour countries (such as Turkey or Russia) and financed by the AIIB, one can observe that many of them have experienced the direct participation of domestic financial actors as well as of other multilateral development banks.

Another set of concerns related to the BRI is that it could create debt traps for recipient states, in the long term threatening their political and economic independence. If this set of assumptions has grounds when considering fragile developing countries that are highly indebted to China, they have no reason to stand when it comes to Italy. In 2018, only 30 per cent of the Italian Government's debt securities was held by non-residents – and just 7 per cent of that was in the hands of entities based outside the Eurozone. 57

Another risk is that a growing consolidation of Chinese financial actors in Italy, potentially boosted by the MoUs, could facilitate Chinese investments in sensitive/strategic assets in the country – thus winning the PRC a degree of control over such assets. Yet, both as a member of the EU and on its own, Italy has in place legal frameworks that mitigate such risks. The national discipline that regulates foreign mergers and acquisitions in strategic sectors gives the Italian Government great leeway to block 'unwelcome' moves by foreign companies. The country's investment-screening mechanism is actually one of the most stringent in the EU.

A more realistic risk related to the BRI is that EU member states, including Italy, fail to place their China policy in a common framework. This concern is extremely relevant for the financial industry. The PRC has been promising a more open domestic financial market for ten years now, and the process is far from complete – despite the positive step represented by Intesa Sanpaolo's recent licence. Even though one of the pillars of the Italy–China MoU is indeed the establishment of a more level playing field internally, Italian financial institutions are sceptical about China opening up its financial market and doubts exist as to

57 Chiara Cremonesi, 'Who Are the Foreign Investors in Italian Government Debt? A Breakdown by Geography and Institution', in *Rates Perspectives*, No. 65 (3 April 2019), https://www.research.unicredit.eu/DocsKey/fxfistrategy\_docs\_2019\_170284. ashx?EXT=pdf.

whether the 2019 MoU will accelerate the process. More likely, their hopes rest on the eventual ratification of the Comprehensive Agreement on Investments that the EU and China concluded in December 2020, which should create more favourable conditions for European – and, hence, Italian – businesses to obtain access to the Chinese market.

In conclusion, despite their highly political symbolism, the BRI-related MoUs in the field of financial cooperation have led to no groundbreaking development thus far – nor do they pose short-term strategic risks for Italy. They can only provide Italy–China financial cooperation with a (vague) direction – leaving unclear the question of whether, and how, that cooperation could be further advanced.

#### **References**

Francesca Ghiretti and Lorenzo Mariani

### **Chapter 3: One belt one voice: Chinese media in Italy**

Since Xi Jinping took office as party general secretary in 2012 (and then as president in 2013), the Chinese Communist Party (CCP) has significantly intensified its efforts to shape the global perception of China. Besides relying on traditional forms of public diplomacy and soft power, it has carried out a number of activities – some of which not entirely benign – aimed at maximising the reach of its propaganda abroad, spreading positive narratives regarding China while simultaneously attempting to suppress critical voices. Beijing has also pushed its national media outlets to expand internationally. In recent years, China's state media have indeed strengthened collaboration with foreign media outlets and journalists' unions.

Against this backdrop, on the occasion of the signing of the MoU in support of the Belt and Road Initiative between China and Italy in March 2019, two of the most important Italian media outlets, Rai and Ansa, signed bilateral agreements with Chinese counterparts, respectively: China Media Group (CMG) and Xinhua. This was a formalisation of the already flourishing ties between Italian and Chinese media outlets, which started almost a decade ago. Although the agreements signed within the MoU have increased China's capabilities to present its state-controlled content directly to Italy's public opinion, Beijing's strategy to promote a more favourable opinion of China does not appear to have paid off. Through the use of open-source documents, interviews and press release, the following analysis examines the multitude of connections between Italian and Chinese media companies and assesses the level of penetration of that Chinese state-run media in the Italian media environment – a phenomena so far overlooked in the existing literature. Assuming that the expansion of such agreements can be linked to the CCP's strategy to control the narrative on China abroad, we provide evidence that the exposure to Chinese propaganda has so far produce poor results in terms of shifting the Italian public opinion towards an overall more favourable view of China.

#### **1. Tell China's story well: Beijing's strategy to control international narratives on China**

Over the last decade, China has embarked on a meticulous plan to renew and expand its external communication strategies. As the country gained more relevance on the global stage and its economic and political ambitions transcended its borders, the Chinese leadership felt the need to modernise the country's public diplomacy strategies and develop new narratives tailored for foreign audiences. Although the forerunner of this initiative can be traced back to Hu Jintao's tenure as party secretary general (2002–2012), it is under Xi Jinping that the CCP has sped up the process. 1 In August 2013, during the National Propaganda and Ideology Work Conference, the Chinese president urged governmental bodies and news agencies to 'tell China's story well'. 2 Xi argued that 'We [the CCP] must meticulously do foreign propaganda work well', fighting negative preconceptions spread by Western countries – such as the 'China Threat Theory' or the 'China Collapse Theory' – and promote a more favourable view of China abroad by 'disseminate China's voice well, and strengthen our discourse power internationally'. 3 Xi's speech set in motion a drastic change in China's public diplomacy that in a few years has revolutionised not only the way in which Beijing communicates with the world – 'wolf warrior' diplomacy, social media platforms, etc. – but also the nature and content of the messages conveyed to foreign audiences.

Xi's call to strengthen the party-state's ability to control the global discourse on China and disseminate Chinese ideas internationally is motivated by a variety of factors. Domestically, this foreign outreach is an offshoot of a broader communication campaign aimed at reinforcing patriotism among Chinese citizens and thus the legitimacy and centrality of the CCP. This new domestic narrative is epitomised in the concepts of the 'Chinese Dream' and the 'rejuvenation of the Chinese nation', which were incorporated into the Chinese constitution in 2017 as main pillars of the 'Xi Jinping Thought'. 4 Boosting China's

1 Danielly Silva Ramos Becard and Paulo Menechelli Filho, 'Chinese Cultural Diplomacy: instruments in China's strategy for international insertion in the 21st Century', in *Revista Brasileira de Política Internacional*, Vol. 62, No. 1 (2019), Article e005, https://doi.org/10.1590/0034-7329201900105.