China Buying Italy Amid the Covid Crisis?

By Debalina Ghoshal

One of the worst countries to be hit by the Covid-19 is Italy.

Amid this crisis, China is however, utilising this as an opportunity to increase its investments in the country.

Following the Coronavirus pandemic, European economies have deteriorated.

Italy with an already weakened economy is already slipping into recession.

Job losses due to the economic shut down following the lockdown has been a major set-back for Italy.

In addition, the pandemic has led to a decline in Italy’s tourism industry.

Amid these crises, many Italian entrepreneurs who are facing cash crunch due to the shutting down of the economy, are slowly selling off their businesses to China.

Italy last year joined China’s Belt Road Initiative (BRI) becoming the first major European economy to have joined this project to strengthen Italy’s financial cooperation to bolster the economy.

However, despite the bonhomie with China, Italy’s trade deficit with China clearly meant that new cooperation agreements of Italy are not helping. Further, exacerbating was the fact that Chinse investment last year in Italy had underperformed.

In addition, during the crisis, China forced Italy to buy backhe same Personal Protective Equipment (PPEs) that Italy had donated to China when China was suffering from Coronavirus.

Italy has not backed domn from its support for China and has refused to blame China for the spread of the virus or even accuse China of mishandling their wet market mechanisms.

One of the reason for Italian policy in the crisis was the restriction imposed by European Union to provide masks and other important equipment to Italy during the crisis when Italy called out for help.

However, it must be noted that Italy’s growing relations with China and its participation in the BRI have not gone down well with its European allies.

Italy is becoming a strategic partner for China as it is a gateway for China into the Mediterranean.

China had already increased its foreign direct investments (FDI) in Italy prior to the crisis, and the crisis provides an opportunity for China to increase its flow of FDIs into the Italian economy.

According to China Briefing, “The sudden increase in the 2015 FDI flow was due to the Chinese SOE ChemChina acquiring 16.89 percent of Pirelli, the world’s fifth largest tire maker, for EUR 7 billion (US$7.9 billion).

Chinese FDI spans across a wide variety of industries in Italy, including entertainment, robotics, and luxury brands.

The People’s Bank of China has invested around two percent in 10 of Italy’s largest companies, including those in the automotive industry and telecommunications, amounting to a total of about EUR 3.5 billion (US$ 4 billion). Energy, once again, is a key investment target.

In 2014, China’s State Grid acquired a 35 percent stake for EUR 2.1 billion (US$2.4 billion) in the energy grid company CDP Reti.”

China is also eyeing Italian ports as an investment target.

For example, state owned infrastructure group China Communications Construction Company (CCCC) signed cooperative accords with governing bodies of ports of Trieste and Genoa in March 2019 soon after Italy subscribed to the project of BRI.

Trieste is a port in the northern Adriatic Sea and is strategically important for China.

China could also be interested in the Sicilian port of Palermo.

This could open new business opportunities for China as the hub port can serve crucial stop over for ships passing to Europe.

The biggest problem is the way China has entered into the European markets, they have not provided reciprocal entry of European markets into China.

Post pandemic, there has to be an effort by the European Union to strengthen the Euro zone in order to prevent excessive Chinese investments and to do a more rigorous control over investments by China within Europe itself.

Italy has already imposed the ‘golden powers law’ to tighten investment of foreign countries from taking over weaker companies in Italy but proper mechanisms need to be in place to prevent Chinese companies from taking over key sectors of the Italian economy.

As Mattia Ferraresi noted in a March 31, 2020 article published by Foreign Policy:

“Italy is an ideal outpost for China’s wide-reaching propaganda effort to cover up its own responsibility for the global spread of the new coronavirus, all the while presenting itself as a compassionate power aiding Western countries in need.

“The government has been pursuing a two-pronged strategy that carefully combines sending medical supplies to assert its relevance in a leaderless world—call it mask diplomacy—while at the same time spreading conspiracy theories to conceal the true origin of the virus. In this “global battle of narratives,” as the European Union’s foreign-policy chief, Josep Borrell, called it, “China is aggressively pushing the message that, unlike the US, it is a responsible and reliable partner.”