Sunday, March 24, 2019

Italy Picked Off By China? The Folly Of It All

Historic Memorandum Has Huge Ramifications
The Italian Prime Minister and Chinese President Xi Jinping signed a historic memorandum of understanding Saturday morning in Rome that made Italy the first founding EU  member, and the first G-7 nation, to officially sign on to Beijing's "One Belt, One Road" (OBOR) economic development initiative. This was done as Washington and  Brussels which have expressed concern helplessly looked on. OBOR, one of President Xi Jinping's signature ventures, is viewed by many as China's somewhat dodgy project to re-colonize the world's poorer nations and gain leverage over them by implementing a strategy of extending cheap credit, then seizing assets. An example of this is what occurred with a port in Sri Lanka.

Along with the memorandum, China and Italy inked development deals covering everything from port management, science and technology, e-commerce and even soccer. These so-called deals reported as totaling as much as $20 billion appear to be Italy's motivation. For Italy, this appears an "any port in a storm" situation. Italy struggling with a high level of debt and a stagnating economy has found the EU less than supportive and lacking answers as to how they might kick-start growth. Still, the folly of linking up with China in hopes they will become a lifeline to prosperity comes across as an act of desperation that will not end well.

China Has Printed Money Like Crazy (click to enlarge)
The OBOR project designed to expand China's trade and influence is controversial and could become a massive problem over time. The number of problems with this union are almost too many to count. Italy which has seen its manufacturing sector debased by cheap knockoffs from China and other low wage countries will find little comfort in bringing more of these goods into their market. The high fashion houses located in and around Milan will only face more grief as China exploits Italy and uses it as a backdoor into the broader Euro-zone market. Not only has the IMF warned of the potential of many of China's OBOR funded projects going bust China's history of flexing its predatory business model should leave many Italians very concerned. If you wonder how China will pay for OBOR, it appears to many China watchers that they will simply continue printing money and expanding credit.

Much of the blame for this problematic alliance falls on Brussels and the EU for its failures to deal with worsening conditions within its borders. The U.S. National Security Council was not alone in issuing a direct warning to Italy recently for its coziness with China but was joined by a firestorm of responses from leaders such as Donald Trump, Angela Merkel. Jean-Claude Juncker, the head of the European Commission recently described China as a "competitor, a partner, a rival," terms that indicates the unease and fear at which the EU must feel when they look out at the expanding giant that cranks out products at a cost far below those at which they can compete. Yes, again trade and deficits loom large in the minds of those watching this unfold.

Port In Trieste Gives China New Access
Also, there is the issue of defense, Italy, a key member of NATO has just given a fox the keys to the hen house. Buried within the dozens of agreements signed were two port management deals between China Communications Construction and the ports of Trieste. These ports are located in the northern Adriatic Sea, and Genoa, Italy. While Genoa is a long-established port, the port in Trieste has the most potential for China, the South China Morning Post. reports the port is strategically important for China because it offers a link from the Mediterranean to landlocked countries such as Austria, Hungary, the Czech Republic, Slovakia, and Serbia. All these countries are markets Beijing seeks to reach through OBOR.

Following the signing Chinese media celebrated Italy's decision, and predicted that it wouldn't be the last western power to side with Beijing. All this flies in the face of what the European Union proposed following its review of China policy, it recommended "10 actions" to member states, including requiring reciprocity for market access, it also highlighted national security risks stemming from Chinese investment in "critical assets, technologies, and infrastructure." All in all, this is a big deal, it lends legitimacy to China’s predatory approach to investment that continues to unfold across the world and it even undermines the current trade talks between America and China.  

Consider this article an overview of the folly of all this and recognition that the world is not progressing in an orderly fashion. Still, the ramifications flowing from Italy's deal with China may, in the end, prove to be a deal with the devil that opens the floodgates that washes away much of the EU and breaks the euro. Because of China's ties with Russia, it might even strengthen Putin's ability to push back on NATO. This may also change the face of Italy forever, adding to the influx of immigrants that are now there we will most likely see an influx of Chinese workers. While many of us can sympathize with Italy for the pickle it finds itself in that lead to this turn of events

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Footnote; For more about how Italy got into it current mess see the article linked below.

1 comment:

  1. The alternative for Italy is the Troika and/or the IMF. Given what happened to Greece under Troika IMF restructuring, Italy did well to roll the dice with China. Productivity in the port of Piraeus has tripled under Chinese management and investment. The ex Finance minister of Greece who negotiated for Greek workers at the time of the crisis got what he asked for; increased investment and job security for the Greek workers. Italy is prescient about Europe's future under EU control and they chose to leave it out of its survival plans. Good move, Italy.