Italy’s Palermo Set to be a Belt and Road Port

Italy is poised to sign an MoU with China concerning its support for the Belt and Road Initiative, and aims to sign this off during the visit of Chinese President Xi Jinping to Rome on March 22nd and 23rd.

Significantly, after Rome, Xi will visit the Sicilian port and city of Palermo. The Palermo port, part of Autorita’ di Sistema Portuale del Mare di Sicilia Occidentale (AdSP – Western Sicilian Sea Port Authority), is located in the northwest of the island of Sicily, on the Gulf of Palermo in the Tyrrhenian Sea, in the middle of the Mediterranean Sea. It handles cargo, cruise ships and is the location of a Fincantieri SpA shipyard.

Palermo-based Istmo srl has been working on a plan that details how investment could increase the port’s handling capacity from a current level of around 10,000 TEU to 16 million TEU, which is higher than Rotterdam’s current TEU traffic. An estimated €5 billion ($5.67 billion) investment would be required.
It has been reported that a delegation of Chinese officials met with Eurispes (Istituto di Studi Politici, Economici e Sociali), an institute of political, economic and social studies, to discuss the project, which could become a hub on China’s Belt and Road Initiative.

Alberto Vettoretti, Managing Partner of Dezan Shira & Associates China, explains the significance of Chinese investment into southern Italy as follows:
“The previous Italian prime minister, Paulo Gentiloni was one of the few Western leaders to attend the inaugural Belt and Road conference in Beijing (although he did not sign an MoU), indicating that Italy always showed interest in having a closer relationship with China. This is in spite of the mounting criticism in Washington and Brussels.
The Italian stance does not appear to be changing; in fact, quite the reverse is true as the populist government is now challenging Brussels policies in legal actions over agriculture, financial, and immigration policies – it will not be a surprise if they do sign a Belt and Road MoU.

The EU on the other hand wants a united front, limiting strategic Chinese investment in Europe. However, the current Italian government seems to have different ideas. China has already invested a lot in Italy in strategic sectors while Chinese companies, such as Huawei are not frowned upon as elsewhere in the West and have been awarded major contracts. The current under-secretary for economic development (Mr. Geraci) lived in China for 10 years, and is influential over how the Italian government deals with China.

Key points for the Italian government as concerns China and the Belt and Road Initiative is that the south of Italy is in desperate need of infrastructure investment and the current government has its hands tied. As they cannot expand their fiscal deficit under current EU rules, Chinese investment or cheap financing or infrastructure to create economic activities will obviously be welcomed.

At Dezan Shira & Associates Italian offices in Treviso and Udine, we understand there are already discussions concerning port investments in the south of Italy, including in Genoa and Palermo. We do not think these possible investments will be huge or will create a diplomatic “disaster” to harm relationships with other western countries. The COSCO investment in the Greek Pireaus port is a success story, suggesting that should similar projects go ahead in southern Italy, these would bring additional benefits to the local community, to Italy’s export potential to China and other countries along the Belt and Road, and, perhaps more importantly, Chinese/Asian exports into Africa (from Sicily and Calabria). China will also have its flag on the map very much within the EU, a major coup for Beijing.”

The development would come at a good time for Palermo and Sicily, but would also raise further concerns about Chinese investment in European transport facilities. Officials in Brussels and Washington have indicated growing concern about China’s investment in European transport facilities, particularly in the seaports and logistics sectors.

China’s COSCO Shipping Ports Limited manages Piraeus Port Authority SA (PPA) in Greece, and despite increased traffic and profitability, there are concerns about the level of investments in activities not directly related to traditional port activities, such as hotels and retail facilities, and the effects on local businesses.

Last month, PPA signed a memorandum of understanding (MoU) with the Italian port authority that manages the ports of Venice and Chioggia. Also, Genoa port is expected to sign a memorandum for the establishment of a joint venture with China Communications Construction Company (CCCC) on March 23.

This comes at a time when the European Union (EU) has proposed new investment screening measures for foreign state-owned companies that want to purchase interests in European harbors. This has not gone down well with certain member states who accuse Brussels of interference in sovereign affairs, especially when the same rules apply to non-EU funded infrastructure projects.

Since 2000, Chinese companies have acquired stakes in some 15 ports in Europe, that collectively handle more than 10 percent of shipping containers traffic to and from the China and Europe, 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; Marsaxlokk, Malta; Istanbul, Turkey; Piraeus, Greece; Bilbao and Valencia, Spain; Marseilles, Nantes, Le Havre and Dunkirk, all France; Antwerp and Bruges, both Belgium, and Rotterdam in the Netherlands.

Chinese companies have participated in the construction and operation of 42 ports in 34 countries under the Belt and Road Initiative. China has also signed 38 bilateral and regional maritime agreements covering 47 countries along the Belt and Road trade routes. The key strategy of COSCO and other Chinese companies is to invest in smaller European seaports and then try to develop them.

Related Reading:

Italy to Sign Off on Belt and Road Initiative

EU Member States to Offer Visas for Workers from Belt and Road Countries?

Eurasian Economic Union and EU Members Begin Belt and Road Cooperation