Analysis – China and Italy sign new Silk Road agreement – the aftermath

Genoa, Italy (Ports Europe) March 31, 2019 - A total of 19 institutional agreements and 10 commercial agreements were signed during the state visit of President Xi Jinping of China to Italy, covering a wide range of themes and industry sectors – all dominated by an overall non-binding agreement for Italy to cooperate with China in the latter's new Silk Road. After the state visit to Rome, he made a private visit to Palermo, Sicily. The new Silk Road (part of the Belt and Road initiative also known as One Belt, One Road, or OBOR) is a Chinese economic strategy to seek better access for Chinese-made products in European markets, which includes acquiring stakes in ports and other transport facilities, and cooperation agreements with countries along the Silk Road routes. For the transport sector, the key agreement was the: “Memorandum of Understanding (MoU) between the Italian government and the government of China on cooperation within the framework of the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative”. According to the MoU: “Transport, logistics and infrastructure: Both parties share a common vision about the improvement of accessible, safe, inclusive and sustainable transport. The parties will cooperate in the development of infrastructure connectivity, including financing, interoperability and logistics, in areas of mutual interest (such as roads, railways, bridges, civil aviation, ports, energy – including renewables and natural gas - and telecommunications). The parties express their interest in developing synergies between the Belt and Road Initiative, the Italian system of transport and infrastructure, such as - inter alia - roads, railways, bridges, civil aviation and ports and the EU Trans-European Transport Network (TEN-T). The parties welcome the discussions in the framework of the EU-China Connectivity Platform to improve the efficiency of the connectivity between Europe and China. The parties will cooperate in facilitating customs clearance, strengthening co-operation in sustainable, safe and digital transport solutions as well as in their investments and financing“. This non-binding agreement should help generate investment worth tens or even hundreds of millions of euros for the Italian ports of Genoa and Trieste. In contrast, it has generated considerable criticism from the European Union (EU) and the United States (U.S.), who see this as an unwanted route for China into Europe at a time of geopolitical and economic tensions. Which ports benefit? The clear beneficiaries from the Italy-China relationship are the ports of Genoa and Trieste, which both signed commercial agreements with state-owned China Communication Construction Company (CCCC). Genoa-based Autorita’ di Sistema Portuale del Mar Ligure Occidentale (AdSP - Western Ligurian Sea Port Authority), the Extraordinary Commissioner for the Reconstruction of Genoa and CCCC have signed a collaboration agreement with the aim of cooperating in the implementation of the Extraordinary Program of urgent investments for the recovery and development of the port of Genoa following the Morandi bridge collapse in August 2018. Ponte Morandi (Morandi Bridge, Viadotto Polcevera, Polcevera Viaduct) is a road viaduct in Genoa located on one of the major links from Italy to France and part of the European route E80. In August 2018, a partial collapse blamed on corrosion in the cable stays killed 43 people. It was later decided that the bridge would not be repaired and demolition began in February 2019. The collapse caused huge, still ongoing, delays to transport between Genoa, port and city, and the hinterland. CCCC also signed an agreement with Trieste-based Autorita’ di Sistema Portuale del Mare Adriatico Orientale (AdSP - Eastern Adriatic Sea Port Authority) to develop the port’s infrastructure. Also, a Memorandum of Understanding was signed between Cassa Depositi e Prestiti S.p.A – CDP (83% owned by the Italian Ministry of Economy and Finance), Snam S.p.A (Italian natural gas infrastructure company; CDP is its largest shareholder) and the Silk Road Fund Co. Located in the heart of Europe, at the intersection between shipping routes and the Baltic-Adriatic and Mediterranean TEN-T core network corridors, the Port of Trieste is an international hub for overland and sea trade with the dynamic market of Central and Eastern Europe. The intensification of trade and maritime traffic between the Far East and Europe and the eastward enlargement of the EU have revived the importance of the Upper Adriatic, opening up new growth and development opportunities for Trieste. In this context, Trieste plays a decisive role in two separate supply chains: long-distance intercontinental maritime transportation and short/medium-distance intra-Mediterranean trade. More than 400 trains a month link Trieste to the manufacturing and industrial areas of North-East Italy and Central Europe, with destinations such as Germany, Austria, Czech Republic, Hungary, Switzerland and Luxembourg. Which ports are missing out? There are two opinions here. The operator of Koper port in Slovenia - Trieste's regional rival - sees no problem with the Chinese foray into Italian ports, commenting that any steps which increase cargo capacity in the northern Adriatic can only benefit neighbouring ports, who can provide extra capacity as required and operate feeder services. Italian port of Ravenna, which together with Trieste and Venice (both Italy), Koper and Rijeka (Croatia), forms the North Adriatic Ports Association (NAPA), could also benefit in such a way. In contrast, ports in Southern Italy have not been included this time around. In March, the President of the southern Calabria Region Mario Oliveiro wrote to Italian Prime Minister Giuseppe Conte, criticising the absence of Calabria - in particular the port of Gioia Tauro - in the state agreements signed with China. Both Genoa and Trieste have logistics capabilities to quickly load containers from ships onto trains to be delivered directly into central and northern Europe. Malta and ports in other parts of the Mediterranean often do not have this capability. International Reaction The visit came at a sensitive time regarding concerns in the EU about Chinese acquisitions of European transport assets and pressure from the U.S. to prevent further European investment by the Chinese Huawei company in European 5G telecommunications networks. What does the United States say? The U.S. Secretary of State, Mike Pompeo, said that he was "disappointed" about Italy's joining the Chinese Silk Road project, a decision he considered, would not be in the long-term interests of the country. "It is disappointing whenever a country begins to engage in commercial behavior and interactions with China that are unclear," Pompeo said in response to a question from a deputy in the Foreign Affairs Committee at the U.S. House of Representatives. "It saddens us because we believe that in the end those who lose are the people of those countries," the secretary of state added. "At the moment it may seem positive, we think we have a low-cost product or we can build a bridge or a low-cost road, but in the end there will be a political cost that will far exceed the economic value of what has been provided", he said. Pompeo pointed the finger at Chinese state-owned companies for the use of "debt trap diplomacy". What does Italy say? Italy is the first G7 economy to sign such an agreement which has caused concern, but Italy has a relative low level of trade with China compared to other developed G7 and EU countries, and sees the deal as a development of a trade opportunity. Anyway, Rome sees itself as having a strategic role in the Mediterranean. It also believes that the agreement will encourage China to adopt internationally-recognised best practices. Last but not least, Italian ports face difficulties attracting European investments, so China is a more or less unique funding source for them. What does China say? The state-owned Xinhua news agency said Chinese President Xi Jinping's first overseas trip in 2019 had achieved a train of tangible results, thus further unlocking potential for more dynamic and productive cooperation between China and its many European partners. The Europe tour has helped bolster Belt and Road cooperation, stimulate inter cultural exchanges, and build up a global consensus on safeguarding multilateralism for a better and more shared future. China rejected comments by the U.S. Secretary of State Pompeo, calling them "invented" and "extremely immoral and unjust". The U.S. accusations, said the Foreign Ministry spokesman, Geng Shuang, "are not supported by the facts" and "this smear campaign against China will not lead anywhere". What does the EU say? The German government is concerned about China’s increasing influence in the EU. German Foreign Minister Heiko Maas criticised Italy’s participation in the New Silk Road infrastructure initiative of China. “In a world of giants like China, Russia or our partners in the U.S., we can only exist if we are united in the EU. And if some countries believe that they can do smart business with the Chinese, they will be surprised and eventually wake up in dependencies,” Maas said. Short-term lucrative offers would get a bitter aftertaste faster than expected. “China is not a liberal democracy,” says Maas. The agreement comes at a time when the European Union has proposed new investment screening measures for foreign state-owned companies that want to purchase interests in European harbours. European leaders have noted that the “strategic” cooperation between the EU and China was unbalanced because of the latter’s market-distorting practices, and needed to be reset. EU Commissioner Juncker said last week that Sino-European relations were “good, but not excellent”. Brussels does not support the rapprochement between Italy and China countries. EU leaders consider China a rival as much as a partner, whose markets were not sufficiently open, although they did not spell out specifically what they planned to do about it. They called for an end to naivety in relations with China. What happens next? Piraeus, a Greek port controlled by COSCO Shipping Ports Limited, is an example of how the Genoa and Trieste deals may progress. Under a privatisation agreement, COSCO assumed control of Piraeus Port Authority SA, as well as being operator of Piraeus Container Terminal SA. In the last 10 years, the port’s annual throughput capacity has been raised from the initial 0.68 million TEUs (twenty-foot equivalent unit) to 4.15 million TEUs in 2017. The port is now ranked 36th among the 100 biggest ports in the world according to Lloyd’s List, up from 93rd when the COSCO took over. However, there has been local resistance to the Chinese company's investment plans. The plan includes a new shopping mall within PPA’s premises, five star and other hotels and high-rise construction. COSCO plans an approximate €200 million ($226.89 million) investment in a new cruise port hub, and sees additional facilities such as hotels as a key part of this strategy. Opponents interpret this as COSCO becoming involved in non-traditional port activities. Ports Europe Notes: Since the start of the 21st century, Chinese companies have acquired stakes in some 15 ports in Europe, that handle more than 10% of shipping containers traffic to and from the Old Continent, according to the Paris-based Organisation for Economic Cooperation and Development (OECD). The state owned COSCO Shipping Ports and China Merchants Port Holdings have acquired stakes in: Port Said, Egypt; Casablanca and Tangier, Morocco; Istanbul, Turkey; Piraeus, Greece; Bilbao and Valencia, Spain; Marseille, Nantes, Le Havre and Dunkirk, all France; Antwerp and Bruges, both Belgium, and Rotterdam in the Netherlands. Port of Genoa The Port of Genoa, with a trade volume of 51.6 million tonnes, it is the busiest Italian port by cargo tonnage. It covers an area of about 700 hectares of land and 500 hectares on water, stretching for over 22 km along the coastline, with 47 km of maritime ways and 30 km of operative quays. The port has four main entrances: Eastern inlet, affording access to the old port, to the shipyards, and to the terminals of Sampierdarena; Western (Cornigliano) inlet, used mostly by ships operating at the Ilva quays; Multedo entrance, for ships operating in the oil terminals and to the Fincantieri shipyards; Pra' entrance, at the western end of the port, for ships operating at the container terminal. Genoa port expects the Calata Bettolo container terminal to enter into operation by the end of 2019, the president of the regional government of Liguria, Giovanni Toti, said. “Despite the difficulties, 2019 will be a turning point for the port of Genoa: Bettolo will have to enter into operation at least partially by the end of the year, as well as the completion of the Vado platform and many other investments,” Toti said during the general assembly of freight forwarders association Spediporto. The new Calata Bettolo Container Terminal, with a 750-metre linear quay, 180,000 sq. m. terminal area and a 550,000 TEU/per annum capacity, is the focal point of one of the major infrastructure projects underway in the Ports of Genoa – Sampierdarena Basin. The new APM Terminals container terminal in Vado Ligure (some 40 km west of Genoa) has reached over 78% completion in March, and is scheduled to open end 2019. APM plans to develop the new terminal as a key access point for markets in countries of central and northern Europe (Switzerland, Germany and France), as well as the regions of Northern Italy (Lombardy, Piedmont, Veneto and Emilia-Romagna). The terminal will integrate complex services (cold storage, project cargo, Ro-Ro transport) and become one of the most technologically advanced logistics gateways in Europe, says APM Terminals. APM Terminals operates one of the world’s most comprehensive port and integrated inland service networks. In Europe, the company operates facilities in Belgium, Denmark, France, Germany, Italy, the Netherlands, Romania, Spain, Sweden and Turkey. Port of Trieste The Free Port of Trieste is subdivided into five different free areas, three of which have been allotted to commercial activities. The remaining two, the Mineral Oils Free Area and the “Canale di Zaule” Free Area, are used for industrial activities. Located in the heart of Europe, at the intersection between shipping routes and the Baltic-Adriatic and Mediterranean TEN-T core network corridors, the Port of Trieste is an international hub for overland and sea trade with the dynamic market of Central and Eastern Europe. The intensification of trade and maritime traffic between the Far East and Europe and the eastward enlargement of the EU have revived the importance of the Upper Adriatic, opening up new growth and development opportunities for Trieste. In this context, Trieste plays a decisive role in two separate supply chains: long-distance intercontinental maritime transportation and short/medium-distance intra-Mediterranean trade. The convergence of the TEN-T strategic axes of the “East Mediterranean Motorways of the Sea” with the Baltic-Adriatic and Mediterranean Corridors is resulting in the growth of intermodal services and the development of innovative solutions in the field of logistics and transportation. Trieste is the terminus of regular direct ocean transportation services provided by the world’s main shipping lines to China, the Far East, Singapore and Malaysia, with stops in other ports in the Mediterranean Basin (in Albania, Slovenia, Croatia, Greece, Turkey, Egypt, Lebanon, Israel). More than 400 trains a month link Trieste to the manufacturing and industrial areas of North-East Italy and Central Europe, with destinations such as Germany, Austria, Czech Republic, Hungary, Switzerland and Luxembourg. To reach the target markets in Central and Eastern Europe, highly specialised intermodal services have been developed, using direct trains organised by the company Alpe Adria S.p.A., a multi-client operator, which offers all-inclusive packages with guaranteed delivery and frequency. The Port of Trieste (with water up to 18 metres deep) has an internal rail network (70 km of track) that connects with the national and international network and allows all the docks to be served by rail with the possibility of shunting and/or assembling freight trains directly in the various terminals; a direct junction and a flyover (within the port) connect to the outside road system, which leads directly to the motorway network, ensuring ease of access to the national road network. The Port of Trieste can offer a saving of five days sailing on routes between Europe and East Asia, compared with North European ports. For a fleet of 6,000 TEU container vessels this translates into a saving of over $25 million a year in freight and fuel costs. Trieste port is currently carrying out 22 projects with financing from the European Union (EU), with a total budget of €130 million ($147.5 million). EU financing for the projects is €32 million ($36.3 million) and is destined to different fields, with the most important of them being focused on infrastructure, the Autorita’ di Sistema Portuale del Mare Adriatico Orientale (AdSP – Eastern Adriatic Sea Port Authority) said. Among the most important projects is the Logistics Platform, whose construction will be completed by the end of the year, and the Campo Marzio railway station. There are also projects on environmental issues: an innovative system linked to pre-commercial procurement for the remediation of polluted areas, the design of the electrification of the docks to make maritime traffic cleaner, and the development and adoption of new technologies to optimise the use of existing infrastructures. Trieste Marine Terminal Srl said that in 2018, its facility handled over 3,000 trains, a 49.75% increase in volumes compared to 2017. The result is based on the very strong growth in Central and Eastern Europe, where Austria, Slovakia, the Czech Republic, Germany and especially Hungary with increases from 70 to 130%. The availability of operational spaces, rare in the Adriatic, and the capacity of the railway infrastructure, represent the main factors driving development, allowing the various railway operators to offer punctual and efficient services. TMT is the concessionaire of the container terminal in the port of Trieste, and part of the T.O: Delta group. Source: Ports Europe

Analysis – China and Italy sign new Silk Road agreement – the aftermath

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Analysis – China and Italy sign new Silk Road agreement – the aftermath

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Russia’s total container market in Jan-Nov’24 was 6 mln TEUs

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Update: “Terrorist attack” sank Russia’s biggest logistics vessel in Mediterranean

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