China: Is a Memorandum Forever?

(To Luca Pacioli)

The fault, dear Brutus, is not in our stars, but in ourselves. (Edward R. Murrow, Quote from Shakespeare's Julius Caesar at the end of an episode of See it now).

Time presents itself with the punctuality of bills in protest; 2024 already brings the tinkling of Chinese bells that recall the expiry of the MoU signed in 2019 by Rome and Beijing (photo). There is something to worry about. It is certainly not the responsibility of the writer, who is innocent Jessica Rabbit drawn by others, but of those who have not been able to evaluate a complex situation and which over time has definitively transformed into a more intricate labyrinth than the Chongqing road junction1. If the BRI is not a new Marshall Plan, the Memorandum is instead a hybrid located outside the international legal system, given that it is not usual for a protocol, even in a simplified form, not to give rise to any right or duty without considering the need to recall the obligations deriving from EU membership of a country which, accustomed to deciding not to decide, takes more than relevant infrastructures for granted.

What happens in the geopolitical planet of the Middle Empire? Foreign policy marks several critical points; the absence of Foreign Minister Qin Gang deprived feluccas of an undisputed star; net of gossip, it is interesting to understand if there is a real political problem, a consequence of internal disagreements, capable of cornering the Great HelmsmanQin's mentor. Hypothetical (and dramatic) replacements will make it necessary to immediately frame the profile of the new head of a diplomacy that is potentially antithetical to the rigid deputy prime minister Wang Yi. The absence of Qin, former ambassador to Washington, causes a sensation especially because it coincides with meetings with US delegations, especially the one with Treasury Secretary Janet Yellen; however, never espouse unconfirmed theses: Xi Jinping himself in 2012, shortly before assuming leadership, fueling rumors of power struggles, had disappeared for two weeks. To find out how it turned out, ask Hu Jintao. But Beijing looks even closer, to Taiwan, to one Z scenario, which assumes the global extension of a regional conflict. The G7's posture with respect to the Ukrainian invasion has revived the possibility of suffering similar asymmetric measures even in the event of actions just below the kinetic guard level of a military invasion.

Like any aspiring hegemon, Beijing is therefore on the hunt for information (does 5G say anything?); in this regard the Ong Safeguard Defenders reveals that there are about 102 more or less covert Chinese police stations in the world11 in Italy2, the result of agreements on which, in terms of public order and sovereignty, we should reflect. It is no coincidence that the United Kingdom has raised an alarm about the Chinese ability to profitably penetrate every English economic sector; needless to point out that the analysis disseminated byIntelligence and Security Committee of Parliament (Isc), entitled China, has seriously embarrassed the government of Rishi Sunak, accused of having underestimated a more than concrete threat, especially in the light of the warnings launched by the academic world and by MI5, regarding the presence inside Parliament3 of an alleged Chinese agent, Christine Lee.

In Europe, hybrid Russian and Chinese tactics have increased over the past 15 years; an annual report of 2022 published by Copasir, highlighting the activities aimed at gaining access and influence, reiterated it, identifying the critical issues in the information, political-diplomatic, cybernetic, economic domains.

Also in 2022 the European External Action Service he found information alignments between Moscow and Beijing, accompanied by press and thought campaigns aimed at assuming critical positions and contrary to support for Kiev.

Let's go back to China. After a 2022 marked by a downward growth rate, thanks to the end of the very strict anti-Covid measures, an uncontainable rally was expected in 2023. Despite an initial recovery, the trend slowed down with the emergence of worrying youth unemployment at 20,4%. Estimates of economic growth are therefore downwards, also because the awareness of structural suffering is beginning to gain ground.

Causes? The Chinese economy is based on consumption, exports and sectoral investments in construction, manufacturing and infrastructure. Among the priorities, both the need to reduce debt and to rebalance the construction sector, which was put in crisis in 2021 by the virtually default of Evergrande, raised on the wings of debt, from the slowdown in investments and a contraction in real estate sales for a value equal to 5% of GDP in 20224, to which a fiscal deficit of -7,4% of GDP will be added in the current year, not to mention the halt to the banking sector which disburses mortgages or, worse, which must collect the loans disbursed to families who will never see their homes finished. In short: a black liquidity crisis that has been attempted to be resolved by issuing retail savings products, i Wealth Management Products, which promise returns comparable to Ponzi schemes, plus destabilizing discounts on market prices.

Lehman moment? Well, why not? If investments cry, consumption does not laugh, weakened by the effects of sensory deprivation of demand due to Covid. The internal fragilities, characterized by a still unstable 2023, affect even more the fabric of a skeptical and not very confident country, a combination that pushes savings rather than spending; after all, China has a non-existent welfare and a propaganda redistribution that goes hand in hand with a non-existent one shared prosperity.

In the first months of 2023, exports rose, while imports fell with an increase in the trade surplus. China's weakness is double-sided: if it is true that Chinese consumer and production prices have fallen by reducing import charges from Beijing, thus draining part of Western inflation, it is equally true that a drop in Chinese demand would have negative effects on Western exports, accentuating the trend towards a global slowdown. The forecast is therefore negative, with a possible drop in exports caused by the simultaneous contraction of Western demand inhibited by inflation, and aggravated by the inability to balance excess production and domestic consumption. In short, the long-awaited White knight Chinese will not come to save anyone, on the contrary, he will have to beware of one more than likely deflation.

The economy loses momentum relative to expectations; despite the cyclical growth of the GDP, the Dragon is in trouble, its weakness is a loose cannon for the planetary economy. A priority for Xi to avoid still missing the official growth target and to change strategy at a fast pace, also because infections in the economy are very fast and lethal. There is therefore the risk of a crisis, cyclical or structural, we will see: there would be a need for structural interventions for the reallocation of resources hitherto postponed, an aspect that casts doubts on the possibility of overtaking the Yankee economy.

If China, demographically aged before becoming rich, offers lower interest rates than its other competitors, primarily the USA, by worsening its debt, it will expose itself to the risk of capital flight, a risk highlighted by the weakness of the yuan against the dollar, with a 10% loss in value since the beginning of the year.

Is Beijing bidding farewell to Western investment? In addition to the economic uncertainties and a growth heralding possible defaults that would undermine the consensus policy, a repressive activity has also begun by the consultancy firms5 composed of insider corporate and ex clerk state to which Western investors turn to understand the celestial trajectories, because they were accused of espionage activities, despite the fact that not later than a few years ago they were elevated to the honor of the market altars by Xi himself. How fast time flies when you're having fun! The first problem concerned immediate illiquidity, at a time when the unpredictability of the Helmsman's decisions make any investment risky; the second saw Chinese institutions establish a paradoxical and asymmetrical connection with illiquid funds decadent West which, however, begins to talk about decoupling and derisking6. In short, in the light of possible economic-structural crises, Beijing and Washington increasingly resemble the Siamese cats of Lady and the Tramp, with the Chinese feline capable of hiding the real extent of its interventions on the markets. Between foreign currency assets not counted as reserves and loans for which it does not accept haircut but only renegotiations, China is financially even less transparent than before.

What is the risk for Europe? The imbalance of trade relations: the more Chinese imports grow, the more economic dependence is strengthened. Italy docet: the signing of the 2019 MoU has in no way increased tricolor exports, overwhelmed by an increase monstre of Chinese exports7 dedicated to gallstone aficionados. The teaching imparted by the ongoing war is one: look for a certain differentiation in the supplies, especially if not attributable to a circle of secure alliances8. We have to get over it: China is not easy to get rid of, especially if it holds control of raw materials and rare elements.

In the cause (Ariecco) Italy. The current executive, in a short time, is called to decide on the renewal of the 2019 MoU, taking into account the pressure exerted by Washington which does not intend to lose an ally in the fight against Beijing. At a time when Europe, with France and Germany, tries to find a balance in its relationship with China, Italy, by not renewing the agreement, would run into a paradox, that is to say create political lesions at the end of a period in which the agreements have had no positive influence on anything. The problem, like sin, is original, being generated by a deadly error, i.e. signing an agreement without having precise guarantees on its mutual benefits. It should be recalled that, a few days after signing the MoU, Xi signed cooperative agreements with France and Germany (more smart) without being swapped letters of intent, avoiding pathetic slips heralding limitations of sovereignty, resulting from years of ill-considered negotiations conducted by those who have never understood that they are grappling with the attempt to conform a new world order aimed at the next fifty years. Certainly there was a lack of awareness of the globality of the interests at stake, perhaps aiming to increase public spending but without a renewed regulatory structure, skipping the rules that basically govern the economy9. In 2018, 27 out of 28 EU ambassadors criticized the methods of the BRI; in 2019 Italy joined it. Ask yourself a question and give yourself an answer, remembering that the agreement, willy-nilly, has a deep, binding and dangerous political meaning. Who talks about empty boxes it is at least in error.

The MoU for some is a trojan horse, for others, a misstep aggravated by a series of unforgivable oversights, first of all the obligation to cancel instead of the easier lack of automatic renewal, and an involvement hybrid of the Farnesina, clumsily overtaken by the Ministry of Economic Development with the intention of conferring an exclusive technical character by bypassing the political contents, even if present. The current government will not discuss the se, but on the When, considering that the Draghi executive has already hibernated the agreement with the difficult intention of not deteriorating diplomatic relations and with the looming NATO caveat, for which the People's Republic remains a systemic threat. The doubt that national foreign policy may have gone into prolonged anoxia is persistent and reinforced by the reading of assessments of 2019 which now, in the light of what happened, are either unfounded or grotesque10 or worse, harmful11, above all in consideration of a question not yet asked: if the MoU was a letter of intent, what should have been the binding conditions of the subsequent contract, above all in the light of the subsequent national strategic protection policy, laboriously implemented with the instrument of the golden power, which is covering an increasingly large number of sectors?

In the same way as the famous lit match, the Memorandum reached its expiry full of contradictions, errors, wrong evaluations, total lack of analysis: to assert that we are only discussing a commercial agreement means, in the best of hypotheses, not having understood anything, also because it is a document lacking in concreteness but which, by its nature, would be the prelude to negotiations with a counterparty who never concedes anything: those who expected rich prizes and cotillons are destined to leave the room with a handful of confetti , unless it grants Beijing assets and technology against laughable benefits or as if it allows it, a hypothesis to be x files, access and permits for free circulation on the national territory to Russian vehicles and military, a hypothesis in itself ridiculous and absurd. Perhaps.

Could a non-renewal be reported as an infringement? Legally not, politically it will bring consequences that can be mitigated with exclusively commercial agreements, also because, in order to participate in the 6,8 trillion dollar US economic recovery plan, it will be necessary to show reliability. Like it or not, geopolitics is once again taking center stage: the problem is understanding the contexts in time by playing one's cards intelligently.

And here, Edward R. Murrow who introduced us with Shakespeare to understand why we are the only ones responsible for our nonsense, can only greet us with his Good Night, and Good Luck. There is a desperate need for the second.

1 5 levels, 20 ramps, 8 directions

2 Worth mentioning: Prato, Florence, Milan, Rome, Bolzano, Venice and Sicily

3 As of 2005 Lee reportedly donated £675.586,88 to Labor MP Barry Gardiner (later resigned) or directly to the Labor party.

4 CSIS data

5 The largest company subject to controls is Capvision, founded in 2006 by former Bain & Co. consultants and former investment banker Morgan Stanley; the company has been accused of pro-Western intelligence activities.

6 See also the CDs. Shadow reserves, foreign currency bought by the People's Bank of China and then moved off-balance sheet to sovereign wealth funds, or foreign currency bought by state-owned banks acting on the market as if working to stabilize the exchange rate. China buys foreign currency and then lends it to institutional bodies that invest it abroad. Many of the hidden stocks have been invested in illiquid assets, which will not make them reserves in the event of a shock. China has discovered that holding too many reserves means both subjecting itself to particular controls on its activities on the foreign exchange market and having to answer for why it invests in Agencies and not in development.

7 According to Bloomberg, since February 2023 Italian exports to China have exceeded three billion euros. The reasons for the increase are not clear, also because the benefits resulting from the MoU have been limited. What makes Italian exports positive is the traceability to the pharmaceutical sector. The media speculated that there has been a growth in Chinese demand for ursodeoxycholic acid, indicated for liver and biliary syndromes.

8 74% of batteries imported into the EU are from China; Lithuania, after authorizing the opening of a Taiwanese office in its territory, suffered an export embargo from Beijing, which fell by 80%.

9 Competition, internal market, equality between public and private companies, certainty

10 Untruthful reconstructions of the Covid events in China

11 Closure to Persian Gulf States, reconsideration of Russia as a global geopolitical hub to which no sanctions are imposed

Photo: presidency of the ministers' rabbit