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Italy joining China’s Belt and Road Initiative highlights different approaches of Europe and the US on Asia policy

At the annual summer academy for University of Turin students held on the campus of Peking University, about 50 Italian business students spend their days learning Mandarin, studying macroeconomics and interning with Chinese companies.

They call themselves the “Marco Polos of the 21st century”, a giggling nod to the famed 13th-century Venetian explorer. When asked what their career ambitions are, more than a few share the same goal: to be a country manager for China’s ICBC Bank back home in Italy.
This is worth remembering when analysing Chinese President Xi Jinping’s recent state visits in Europe, during which Italy formally became the first G7 country to join China’s monumental Belt and Road Initiative, an ambitious effort to coordinate trillions of dollars of infrastructure investment across the regions of Africa, Europe and Asia historically bound by the Silk Road.

Italy sees itself as a natural gateway for Chinese export ambitions into Europe. Investment from China’s Cosco Shipping rescued Greece’s Piraeus port three years ago, turning it into one of Europe’s fastest growing. According to Germany newspaper Die Zeit, Piraeus will displace Hamburg as Europe’s third-busiest port this year.

No wonder Germany has cast aspersions on Italy’s plans to take loans from the mostly China-funded Asian Infrastructure Investment Bank (AIIB) to develop strategically located Adriatic Sea ports such as Trieste, which is over 300km closer to Munich than Hamburg.

While Europeans have valid concerns about the cost and utility of certain Chinese-backed infrastructure projects in Balkan countries such as Serbia, they have only themselves to blame for these internal divisions over investment from China.

Southern European countries such as Greece and Portugal, as well as those in the Balkans, were hit hard by the knock-on effects of the 2008 financial crisis and the significant contraction of European intra-bank lending that followed.

With diminished structural adjustment funds and private capital coming from their post-cold war patrons in Brussels and other Western capitals, the door was left open for China to make financial and logistical inroads into the Mediterranean.

In the past three years, Italy has become the 14th European Union member to sign a memorandum with China’s Belt and Road Initiative. European neglect is to blame for Chinese opportunism.

Far too often, Europe allows itself to be divided by outside powers, blaming them rather than itself. The US managed to split “old Europe” and “new Europe” to garner support for its 2003 Iraq war. Currently, Russia’s Nord Stream 2 pipeline has caused much controversy.

It is supported by Germany but opposed by the US, which seeks to curtail Russian gas exports while promoting its own liquefied natural gas.

China’s presence now compounds the disarray. Germany and France have backed a European Commission statement calling China a “systemic rival”. Yet, they enjoy the most balanced trade with it.

For its part, Britain has forged a “UK-China infrastructure alliance” aimed at boosting British business in countries where belt and road capital is flowing. Italy would be foolish not to pursue a similar path. Smaller countries like Laos and Sri Lanka may be struggling to pay off non-concessionary loans from Chinese bilateral agencies.

Italy will get loans at more favourable rates from the AIIB. As with Greece, Italy’s participation in the Belt and Road Initiative is likely to create jobs, upgrade infrastructure and boost trade with Asia.

Despite the internal rancour, there is no question that Europe has a more stable and productive relationship with China than the US does. European trade with China exceeds China’s trade with the US, and the US-China trade war will only enhance Europe’s lead.

China has given European banks, such as UBS, privileged rights to own majority stakes in Chinese financial firms, and during Xi’s visit to France, Airbus signed a massive deal for 300 new aircraft to be sold to multiple Chinese airlines, significantly tilting the global aviation rivalry against Boeing.

Indeed, it is worth noting that, at the same time as Xi’s Europe tour, the China Development Forum was under way in Beijing, with major corporate participation and patronage from Daimler, BMW, Siemens, Bosch, Shell, AXA, Unilever, and many other European conglomerates.

As China slowly opens up its markets, in the name of the reciprocity the West demands, corporate Europe appears most likely to reap the benefits.

Thus, despite the new superficial alignment between the US and Europe in expressing suspicion over China’s strategic ambitions, Xi’s visit to Europe more fundamentally underscores the transatlantic divide over how to deal with rising Asian powers.

While the US has escalated its trade war with China and alienated allies Japan, South Korea and India with various tariffs, the EU’s free trade agreement with Japan has just gone into effect, with similar agreements under negotiation with India and the Association of Southeast Asian Nations.

Furthermore, Europe’s critical statements about China don’t nullify the “Asia connectivity strategy”, the EU’s answer to the Belt and Road Initiative, announced in Brussels last September.

It is not difficult to spot other major differences in China policy. While Europe has protectionist tendencies, it is not blocking Huawei but screening it, with Germany requiring the firm to share source codes in onshore information security labs.

While the US has rejected significant Chinese investment in energy, technology and other sectors – Chinese foreign direct investment into the US fell 84 per cent over the course of 2018 – Europe is instituting investment screening into sensitive areas such as robotics.

At the same time, European mid-size companies and family businesses are still drawing in large amounts of Chinese investment as an older generation retires and management committees seek greater Asian exposure. Total Chinese foreign direct investment into Europe has crossed US$60 billion.

Equally importantly, the surge in Chinese investment in Africa serves Europe’s fundamental long-term interests. Only the economic development of Africa will prevent more migrants going into Europe.

With annual EU-Asian trade totalling US$1.6 trillion in goods, and climbing rapidly (versus only US$709 billion in US-EU trade), Europe’s convergence of long-term interests with Asia is likely to advance while the US continues to view China, Russia and Iran through the prism of security alone.

As Chinese Foreign Minister Wang Yi himself put it during a speech in Brussels recently, “Between China and Europe, sometimes we have differences, but we have far more common ground.”

It should not come as a surprise, then, if next month’s 70th anniversary Nato summit in Washington devolves into the transatlantic bickering we have become accustomed to, with the Trump administration seeking to steer Nato into an anti-China compact with Europeans as usual demurring and continuing to shirk promises of greater military spending.

April will also witness the second belt and road summit in Beijing. While Washington officials have dismissed the Belt and Road Initiative as “vanity project”, the growing impact it is having on transatlantic relations shows that it is anything but.
Source: South China Morning Post

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