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China's Italian advance threatens EU unity

Trieste port plans could change north-south economic balance

| China
Italy and China will be acting together in some areas of common interest.   © Reuters

China is becoming the hidden puppet master of European politics. As old rivalries between EU member states resurface over everything from the economy to immigration, China is being recruited to join the fray.

It's a role that Beijing is rapidly learning to relish.

In particular, its Belt and Road Initiative, the intercontinental economic program, has emerged as a powerful weapon that European capitals are using to generate Chinese investment and, often, to assert their national independence from the EU, and its dominant states, especially Germany.

Italy has just become the latest of around 12 EU member states to approve BRI-linked agreements, with Deputy Prime Minister Luigi di Maio signing a memorandum of understanding on March 23 with He Lifeng, chairman of China’s National Development and Reform Commission, during a high-profile visit of Chinese president Xi Jinping.

Joining the Belt and Road is not just a matter of symbolism. True, the memorandums signed have no legal value. Geopolitical agreements never do. But they have political worth. They signal the will to work with China on its plans for a new global economic order.

If countries such as Italy, Portugal and Poland plan to ignore those commitments in the future, they may find that China sees them as politically binding and will respond, if they are ignored.

Moreover, some specific commercial agreements, in the electricity sector, for example, are indeed legally binding.

The Italian government has nonetheless decided to move ahead with its China gambit. From now on, Italy and China will be acting together in some areas of common interest.

It is fairly obvious what China can gain. Italy is the first major economy, and the first Group of Seven nation, to join the initiative. This is a coup for Beijing, as it promotes perceptions that the Belt and Road is unstoppable.

The EU is more divided than ever on China. Some countries such as Greece and Hungary are enthusiastic about cooperation, others such as Sweden remain ambiguous, while France and Germany seem increasingly hostile to China, seeing a growing economic threat. The high ambition of the EU's new China strategy, to redefine China as a rival and competitor, looks implausible.

For Italy the advantage of challenging the European status quo over China is clear. Its exports to China are about 3% of total Italian exports compared to 7% for Germany. Rome can argue that Germany has built up a privileged relationship with China which it wants to preserve by ruling that growth in economic ties between other EU countries and China is unacceptable.

Moreover, Italy's coalition government wants to open EU issues where it feels it has been disadvantaged by a Berlin-dominated union. That includes migration, budget rules and potentially monetary policy.

But such issues can rarely be opened. The EU does not wish to create the political space for such debate because it could literally break the block apart.

The question of working with China is different because Beijing not Berlin has the final word. Italy's populist-led government has jumped at the chance.

The game gets even more interesting once you realize that EU states can use the China lever to reopen controversial European issues, going far beyond bilateral economic ties.

The problem is that the EU does not have the effective mechanisms to manage serious conflicts between member states, tempting EU nations to call upon external actors to challenge the status quo for them. The potential disrupters include not only China, but also Russia and the United States.

Trump has tried the method, bashing Germany over defense, dangling long-desired political prizes before Poland and the U.K., and lavishing praise on the Italian coalition. Russia is a long-standing but exceedingly clumsy operator. China understands how to insert itself in these debates.

The goal seems obvious. By weakening EU unity, China can build strong bilateral economic relations with members, and improve access to markets and technology, without having to fear the kind of confrontation that permanently guides its relations with the U.S.

Economic interests are vital when the U.S. is trying to squeeze China out of its economy. The EU, as a whole, is already China's biggest export market after the U.S. Beijing wants to expand this business, not least by BRI-backed transportation investments, which could revolutionize EU logistics networks.

Take, for example, ports. One of China's main interests in Italy is the northern port of Trieste, the neglected maritime hub of the former Austro-Hungarian empire. Combined with Piraeus in Greece, Sines in Portugal and Valencia in Spain it could form a new Chinese-controlled logistics network capable of redesigning Europe's industrial chains.

By enhancing port infrastructure in the Mediterranean, it should be feasible to transport cargo from China and Asia via shorter shipping lines. Antwerp, Hamburg and Rotterdam are the main ports from where imported cargo is distributed all over Europe. For decades, we have been discussing a possible shift of the traditional dominance of Northern European ports to Southern Europe. China may help make it a reality.

Remember that industrial development in Europe since the seventeenth century is ultimately rooted in Northern Europe's control over the continent's main ports. Industry tends to be concentrated around important transportation hubs. After Portugal, Spain and Italy lost the battle for Europe's ports, they never really recovered.

Trieste is critical because of its privileged location. The distance between Trieste and Munich is roughly half of that between Hamburg and the Bavarian capital. The economic map of Europe is ripe for a revolution. Railway links already exist, borders are irrelevant.

Professor Joost Hintjens at the University of Antwerp has calculated that the maritime route through Trieste, which is closer to the industrial heartland than other China-linked Mediterranean ports, can cut costs dramatically compared to the northern ports. If we take Munich as a proxy for Europe's industrial core, a shipment originating in Shanghai will take 33 days to reach its destination, as compared to 43 days using the North European route. From Hong Kong travel time is reduced from 37 to 28 days.

Redesigning Europe's transportation map will require investment, but China has money and the incentive. Southern European ports can reduce Chinese exporters costs' using routes Beijing seeks to control.

Deep down, the game is less about China than about long-standing EU power dynamics. Unless the EU responds, China will increasingly be able to play one member state against another.

Europeans are starting to realize that their current rules cannot protect them from such dangers. They need stronger mechanisms to manage their political conflicts, and more integration. Just as China entered its own age of revolutions under pressure from European colonial powers, China's rise could force dramatic change in Europe, perhaps toward an even closer union.

Bruno Macaes is a senior fellow at the Hudson Institute and a former Europe minister of Portugal. He is the author of The Dawn of Eurasia.

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