There has been much commentary around the intent and development of China’s push to increase it trade and energy security with Europe. Taking the view that the Xi Jinping announcement that China was giving rebirth to the original Silk Road through the announcement of the Belt Road Initiative (BRI), one can understand why developments in Europe and the Mediterranean have attracted interest of late. This interest underscores how the differences in understanding the intent of China, created alternative engagement strategies. The different approaches are reflected in how Greece and Italy approached China, and how it can be argued that the Italian government was outsmarted by the Chinese, particularly around the ports of Piraeus and Trieste.
In order to understand this, we need to have brief reminder of the history of the Silk Road. The original trade routes connected west to East over centuries. The Mediterranean played a central role, connecting cargos, cultures and people. It provided the connection between land and sea trade, as well as providing the pathway for trade between Europe and markets in North Africa. It also reflects the maritime and trade competition between Italy and Greece has been around for centuries, with their respective strategic importance being further enhanced following the construction of the Suez Canal. In essence this is being repeated under the auspices of the BRI with the infrastructure program pairing ports with rail (inland routes) networks to connect markets as well as provide China with a western outlet to secure trade and energy. Ports and shipping organisations are only now recognising how these port-rail pairings are revolutionising trade.
How China called Italy’s bluff?
In the initial phases of the BRI, Italy took the view of many in the West, arguing China was merely trying to establish itself as the new world hegemon by gaining control of strategic locations through debt diplomacy and commonly referred to debt trap. It also argued that the BRI presented security risks and would lead to increased militarisation of the region.
Greece, in the form of Piraeus saw the BRI differently and saw the BRI as a means to lift their economy by engaging with China. Leading the pack was the Chinese mammoth Cosco Shipping Holdings, operating 150 sea-rail container transportation corridors through 100 ports. After taking a 51% stake in the Greek port of Piraeus it turned this sleepy port into a key transhipment terminal connecting maritime shipments from Asia to rail and roads that snake into more European markets. It delivered the new Silk Road model that connected ports to hinterland markets with rail serving as last and first mile transportation. The results of this engagement saw Piraeus take advantage of the growing container trade of China, which constitutes 32% of the global container fleet. Whilst seaborne trade between Europe and Asia slowed in 2018, Piraeus witnessed growth as China’s maritime gateway to southern Europe, growing from 3.75m teu in 2017 to an anticipated 4m teu in 2018.
With China applying its stated free-choice approach to participation in the BRI, Western Europe is waking up to the ground breaking modus operandi. Italy has been careful to stress that they are engaging China on a whole ‘Italian Port’ basis, arguing that Italian ports offer more than Piraeus in terms of a logistics platform for central and southern Europe, but also into North Africa. Furthermore, Italy has stressed that they will not sell-off assets despite their infrastructure being in a state of crisis. They have encouraged partnership and investment in infrastructure that offers a simpler access to the sea.
However, Beijing has declared its interest in the north-eastern port of Trieste rather than the touted Genoa port. Trieste suits China’s plans as it is already connected by rail to Austria, Belgium, the Czech Republic, Germany, Hungary, Luxemburg and Slovakia. Italy has also been at pains to point out that China made a “mistake” with Greece as it is not within easy reach of European markets by rail. Over and above these claims, Trieste has strategic location advantages for trade between the Suez, Mediterranean, Central-Eastern Europe and the new Arctic Route. These advantages include its 18-20 m water depths, legal status as an international free port as well as being the most northern part of the Adriatic Sea.
Trieste is now openly marketing its location and position to China, particularly their international free port status that allows public concessions over the main free port areas. They are now trying to make up lost ground by positioning themselves to leverage this new transportation mode by adding more features to their service. The free port status makes it possible for value added services such as loading, discharging, storing and manufacturing without having to pay taxes and freedom of transit of goods to other European States. The focus is not so much the number of containers moved but the value added in relation to those containers. For example, Trieste is in the process of seeking $1.3bn so that road / rail access to containers is more efficient. This would be made possible by a large quayside, a railway terminal, container deposit areas and a free zone that can be used for warehousing and goods assembly. China is looking to cover half the cost with the balance coming through countries such as Kazakhstan, Azerbaijan, Turkey, Iran and Malaysia. It is interesting that Italy is the first G7 country to sign an MOU within the BRI framework.
By engaging with China, Trieste has doubled its container traffic since 2016 as it works to take capture some of the 70% of trade that passes between Europe and China via sea routes. There were 486,000 teu moved in 2016 but saw a dramatic jump to 730,000 teu in 2018. The number of operated trains has also doubled from 5000 to 10,000 over the same period. Whilst these are relatively small when considering that Piraeus had 4m containers in 2018, it is a step in the right direction.
Clouds on the horizon?
With the current level of Chinese investment into Italian Companies it is feared that China will obtain almost complete control of the international free port of Trieste. This would give China a significant bridgehead for both economic and strategic penetration into Europe. The EU has raised these security concerns with Italy and has proposed a screening mechanism for security-sensitive industrial sectors. Included in the EU / Italy dialogue is to restrict Chinese ownership to minority shareholdings as well as retaining security control over key assets. It is enforcing the 1954 agreement that gives NATO responsibility for security of the port.
There is also the issue of who actually owns Trieste port. Current agreements are legitimate under Italian Law in any Italian port, however the international free port of Trieste does not belong to Italy or to the EU. It is entrusted to the temporary civil administration of the Italian government by the US and the UK as primary administration governments on behalf of the UN Security Council. This was established under UN Security Council Resolution S/RES/16 (1947) as part of the Treaty of Peace. In other words, the Trieste port opens its doors to all countries and forbids the establishment of the part area’s under the exclusive control of any one country or state.
There is a significant amount of smoke and mirrors with the port of Trieste, but what is clear is that Italy are wanting to participate as a component of the BRI. This realisation has been brought about by China’s engagement with Piraeus in Greece. Whilst there are issues being raised, China can point to the transparent and inclusive nature of the BRI, particularly as they do not seek majority ownership of key assets and accept the security and safety of this key port is enshrined in UN convention as being the responsibility of NATO.