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Italy and China sign €8 bn in trade deals

by Giuliano Noci

After traveling to Germany and the Russian Federation, Chinese Premier Li Keqiang is paying more than a courtesy visit to Italy, which holds the Asia-Europe meeting and has signed €8 billion in trade deals with Prime Minister Matteo Renzi (in photo).

The arrival of Li seals and strengthens a discount shopping spree led by the (state) industry of the former empire, which sees an opportunity to acquire, in the short-term, our know-how in many mid-tech sectors and in our traditional manufacturing, which are new drivers for a competitiveness currently at risk.

Interchange between China and Italy

Quarterly series, billion dollars and % change Q2 2014/Q2 2013

But if this applies to a number of deals (the sale of Ansaldo Energia, for example) the same cannot be said of others. The recent acquisition of simple minority stakes (2%), albeit important in absolute terms, in Telecom Italia, Enel, and Eni needs to be seen as part of a strategy of diversification of the Chinese investment portfolio in sectors considered to be low risk. Without energy and telecommunications a society has no reason to exist.

Italian share in China's imports

Quarterly series (%)

If we consider that, until a couple of years ago, Italy was not on the radar screen of China's equity investments, the injection of capital from a country with huge reserves of liquidity is welcome. Italy needs now to turn the interest coming from the world's second-largest economy and its huge market – which currently seems to be only a one-way business – into an extraordinary opportunity for domestic firms.

It can and must do this by playing the game of this friendly relationship by using its best cards: its own treasures, the mutual ties between the two countries, a system of values and quality of life that are of great interest to China, as well as its capacity of innovation. These cards can allow Italy to play an even more ambitious game than the one which currently sees it in the 21st place among China's import partners and as its 25th largest export market.

Although food and fashion represent the Italian leadership, nearly 40% of around €19 billion of our exports to China are made of machine tools, industrial vehicles and automation systems. These products and technologies are very important for Chinese industry and can develop joint innovation through public and private partners.

The second card is our compatibility in doing business. China is a country with strong business control and a unique ability to develop vertical specialization, use precise market opportunities and develop domestic champions and international giants.

However, for size and cultural factors, it is less strong in diversification and creative innovation. Whereas we are home to excellent small and mid-sized firms; businesses accustomed to creating opportunities from necessity and achieving extraordinary results with limited resources.

A business model that has, however, suffered from poor management that has slowed its growth and forced some sectors to remain too small compared with infinite markets like Asia. China and Italy have now an opportunity to complement their individual strengths and overcome their mutual weaknesses.

There is also a winning card: our leadership in areas of crucial interest for China's development plans.

Precisely in these pages yesterday, Li outlined areas of collaboration in agriculture, aerospace, urban development, environment technology and healthcare. There are sectors like healthcare, food and quality of life, which are not only symbols of the Italian leadership but also an integral part of the Italian lifestyle that has been exported to China and the rest of the world.

Symbols that are important also for China which, as part of its extraordinary development, intends to affirm a new model based on the individual.

Finally, the perception of the quality of our brands: from consumer goods to textile products (more than €4 billion of export sales to China in 2013). This positive image is fundamental for Chinese firms looking to increase their presence in a domestic market that does not recognize Chinese products, especially in sensitive sectors like infant nutrition products and food, for reliable quality standards. This positive image can also help the global expansion of innovative Chinese technologies such as wearable products.

In these historical times, developing successful innovation has become the mantra of the Chinese economy.

We have an extraordinary opportunity before us: turning an extraordinary relationship with China into a regular dialogue that can benefit both countries. This can also be done by changing the method and the substance.

The first can be changed through the definition of a country-wide project, a proactive strategy led by the government and which, thanks to the involvement of universities and the business sector, can project the process of internationalization started by the Foreign Affairs ministry into the future .

The latter needs to take into account the different nature of the Italian industrial products. There are not only the high-end products which make Italy shine all over the world, but also a leadership in technologies which are part of our manufacturing industry, a leadership important for China and which we must learn to promote by sharing our know-how in return for access to their market.

If this is the direction that we are taking, the bilateral meetings this week and the Forum for Innovation held in Milan can breathe new life in this relationship that has deep historical roots (more in Jesuit leader Matteo Ricci than in explorer Marco Polo) and maybe also a common future.

China would bring to Italian quality products the numbers of the market and of a good investment that are part of its leadership. The strength of doing business together could generate deeper dynamism.

Although history does not repeats itself and China is – and rightfully so – what it wants to be, the market could usher in a new form civil society in China.