Before he ever reached Beijing, Mario Monti’s mission to Asia had already generated great expectations for its stop in China (Romani Prodi wrote about it before the trip). When Chinese premier Hu Jintao remarked to Monti at a meeting in Seoul that he would encourage his country to invest in Italy, China once again become the “white knight” for an economy in danger. Public and private enterprise in China often heeds the words of politicians, and they might be interested in some aspects of the Italian economy, but reality is often at odds with hopes and dreams.
Caught between excessive hope and the possibility of disillusionment, the real risk is of neglecting even the slimmest chances for success. China has three main possibilities for investment in Italy: government bonds, infrastructure, and corporate equities. All three options can be economically fruitful, but Chinese needs are going to be the main criteria for selection. China needs significant acquisitions of technology to improve its industrial system, but to make this happen it will also have to change its approach to international business, to replace its investment-based economy, and take some risks.
As far as buying Italian bonds, Beijing’s reaction has been lukewarm. It is not ready to face the fluctuation and instability of the spread. China may prefer security and solidity, but if it had bought Italian bonds a few weeks ago, when interest rates were high, the capital gains would have been enormous. China refuses to accept the risk, even in the face of remarkable compensation. Trust, not money, is the strongest attraction for Chinese capital; a high interest rate is not enough to stimulate investment, when the bonds are seen as being on the verge of failure. In this regard, Mario Monti’s trip to China was vitally important for the restoration of Italy’s credibility. He was tasked with changing Italy’s image from one of danger to one of opportunity, from a European problem to a European solution. The road to redemption is long and difficult, and even if the walk has been started in the right direction, Beijing has been slow – or reluctant – to fully acknowledge that a European recovery is likely, a clear sign of China’s shortsighted political policy.
The chances of possible investments of Chinese capital in Italian infrastructure appear even less promising. Chinese caution finds easy justification in Italian political instability and its burden of bureaucracy. It is difficult to imagine a Chinese investor ready to negotiate a ministerial labyrinth, or with a minor representative of a local administration. In Italy, one needs a strong political commitment to participate in building infrastructure or to buy a stake in the utility sector, but it is widely known that the Chinese do not understand or appreciate the way of Italian politics in such cases. Monti knew his road was entirely uphill, and there was not much he could do about it.
The only sensible investment option for China in Italy is therefore the acquisition of Italian industrial know-how, as a shortcut to improving China’s own industrial assets. For Italy it represents a liquidity boost to help weather its credit crunch, but it comes at a high price: Italy will have to sell its crown jewels if it wishes to attract any significant amount of Chinese capital. Being painfully aware of this, Monti could not have had great ambitions. His cardinal task in Asia was to bring into order the damaged relationships and put them back on track. No Italian corporations joined his delegation, nor did he address any serious problems with China. Monti could have tried to repeat the scale and scope of the 2006 state visit, when hundreds of Italian companies followed the then Prime Minister in a massive promotion of the best of “Made in Italy,” but the depth of the crisis today would have made such an endeavor nearly impossible. Instead, Italy’s Premier Monti cleverly sowed the seeds of progress, demonstrating his pragmatism. The fruits of his trip will be borne in time, but there is great promise: Monti was able to gain the esteem and respect of the Chinese, a rare accomplishment that should not be taken for granted.