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1. The Future of the Belt and Road in Europe: How China’s Connectivity Project is Being Reconfigured across the Old Continent – and What It Means for the Euro-Atlantic Alliance

Author:
Nicola Casarini
Publication Date:
02-2024
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
China’s Belt and Road Initiative (BRI) has entered the twilight zone in the old continent, following a deterioration of bilateral relations between the EU member states and China over the last years. Italy’s official exit from the BRI at the end of 2023 was a further blow to Chinese President Xi Jinping’s signature foreign policy. Yet, the BRI in Europe is being reconfigured rather than being terminated. In Western Europe, the BRI is moving away from physical infrastructure projects and investment in industrial assets – the latter being increasingly protected from Chinese takeovers by both national and EU legislation – to financial and monetary connectivity. This shift is welcomed by various European actors, including some policymakers at the national level, eurozone institutions and major banks. Concurrently, most of Eastern European countries continue to promote BRI projects and seek to attract Chinese investments, suggesting that there is a two-speed Europe when it comes to China, both in terms of geography and sectors.
Topic:
Infrastructure, Foreign Direct Investment, European Union, Belt and Road Initiative (BRI), and Currency
Political Geography:
China, Europe, Asia, and Italy

2. Reshuffling Value Chains - South Korea as a Case Study

Author:
Françoise Nicolas
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Institut français des relations internationales (IFRI)
Abstract:
Despite all the talks about the reshuffling of value-chains and the trend to a form of industrial “Desinicization” (or decoupling/disengagement from China), the example of South Korea does not vindicate such assertions. The expansion of Korean direct investment in neighboring countries such as China and the Association of Southeast Asian Nations (ASEAN) remains a reality and it has not changed in any fundamental way over the past two decades. South Korean companies’ decisions to locate in one country rather than another are still very much based on cost factors, even if security considerations are increasingly factored in. Similarly, reshoring, which has been high on the South Korean government’s agenda for a long time, remains a marginal phenomenon for South Korean companies, despite the incentives provided. Rather than the relocation of production (in the form of reshoring or nearshoring) South Korean companies have turned to more unexpected options, such as the development of complementarity-based partnerships or vertically-integrated production networks with commodity suppliers, as in the case of the production of rare earth-based magnets. Such a strategy is likely to become more popular in the future, as it nicely combines economic and security considerations. Without a doubt, due to the highly politicized nature of the technology involved, the semiconductor industry is the one undergoing the most significant changes. In a context of rising Sino-US rivalry, the US has ramped up pressures on China with far-reaching consequences, leading South Korean semiconductor companies (with the support of the government) to engage in a strategy combining relocation to the US and onshoring in South Korea. While the economic logic is likely to prevail in most sectors thus limiting the scope for supply chain reshuffling, the examples of the semiconductor and rare earth-based magnets suggest that important changes can still be expected in the future in industries that are deemed strategic.
Topic:
Foreign Direct Investment, Supply Chains, Value Chains, and Semiconductors
Political Geography:
China, South Korea, North America, and United States of America

3. Time to say goodbye? The impact of environmental regulation on foreign divestment

Author:
Haiou Mao, Holger Görg, and Guopei Fang
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We look at divestments by foreign firms – a topic that has received comparatively little attention in the literature – and investigate how changes in the regulatory environment in the host country may impact on such divestment decisions. We use the implementation of China’s Two Control Zone (TCZ) policy as a “quasi-natural experiment”, using detailed firm level combined with city level data for the empirical analysis. Our results show that the implementation of TCZ policy has led to higher probabilities of divestments by foreign firms in targeted TCZ cities and industries. The mechanism behind this seems to be a TCZ-induced increase in discharge fees and efforts to reduce SO2 emissions. Allowing for heterogeneity of effects, we find that the effect is particularly strong for firms from source countries with less stringent environmental regulation, and those using less advanced technology. We furthermore show that firms using intermediates from polluting industries also experience a higher probability of divestment.
Topic:
Climate Change, Environment, Foreign Direct Investment, Regulation, Business, and Divestment
Political Geography:
China and Asia

4. The Great Supply Chain Shift from China to South Asia?

Author:
Ganeshan Wignaraja
Publication Date:
07-2023
Content Type:
Research Paper
Institution:
Gateway House: Indian Council on Global Relations
Abstract:
Global supply chains connect world industry and international trade in manufactures. East Asia’s dominance with China as the preferred assembly hub in global supply chains has brought unprecedented regional prosperity, but South Asia remains a latecomer. However, pandemic-related and post-pandemic continuing disruptions to supply chains and slowing growth are being keenly felt, dampening China’s attractiveness. In an uncertain global economy, increasingly footloose foreign investors are looking for alternative production locations. Is it South Asia’s turn to prosper through supply chains in this uncertain world? This is the topical public policy question facing India and the others in South Asia. This paper discusses the concept of global supply chains, the industrial rise of East Asia, drivers of supply chain relocation from China, South Asia’s prospects, India as a complementary hub and policy lessons from East Asia’s industrial success. For the purposes of this paper, South Asia is broadly defined as the India and its contiguous countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
Topic:
Industrial Policy, Monetary Policy, Foreign Direct Investment, Industrialization, COVID-19, Supply Chains, and Geoeconomics
Political Geography:
China, South Asia, Asia, Southeast Asia, and United States of America

5. Xi Jinping’s Vision for the Middle East

Author:
Yair Albeck
Publication Date:
07-2023
Content Type:
Policy Brief
Institution:
Hudson Institute
Abstract:
Chinese leader Xi Jinping clearly aspires to establish a new global economic order centered around Beijing, not Washington. However, a new global economic order cannot be built in a day. The immensity of this challenge has forced Xi to set his sights on a set of interim goals. These include cementing the Communist Party’s control of the Chinese economy and shielding supply chains, capital flows, and strategic bilateral and multilateral relationships from hostile American policies. These goals equate to the creation of a Sinocentric global economic subsystem. This would be partially integrated into the current Western-led system but would be sufficiently decoupled from the West to protect the pillars of the Chinese Communist Party’s political economy. In Beijing’s grand design, the Middle East plays an indispensable role. But Western analysts have often misjudged China’s interests in the region as purely commercial. While Xi values the region for its economic potential, he sees it as one of the most important arenas of competition with the United States. Yet when United States National Security Advisor Jake Sullivan recently discussed American leadership of the global economy, he focused on Europe and the Indo-Pacific and mentioned Africa and Latin America. He did not mention the Middle East once.1 Washington’s persistent blind spot in the Middle East has obscured its view of Beijing’s global ambitions. If the US does not rectify this mistake, it risks losing more influence in the region and aiding China’s effort to supplant the US atop the global economic order.
Topic:
Foreign Policy, National Security, Political Economy, Foreign Direct Investment, and Xi Jinping
Political Geography:
China and Middle East

6. Timing Is Everything: Italy Withdraws from the Belt and Road Initiative

Author:
Aurelio Insisa
Publication Date:
12-2023
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
After months of rumours and speculations, on 6 December 2023, the Italian newspaper of record, the Corriere della Sera, broke the news that Rome had finally withdrawn from China’s Belt and Road Initiative (BRI), via a note sent to Beijing three days earlier.[1] In the absence of an explicit request to withdraw before the end of December, the memorandum of understanding (MoU) instrumental to Italy’s participation in the BRI would have automatically been renewed for another five years starting from March 2024. Italy’s subdued withdrawal from the BRI marked the epilogue of a long, laborious, yet ultimately successful diplomatic process that reflected a reassessment of its bilateral relations with China. The origins of this reassessment can be traced back to the government led by Mario Draghi between 2021 and 2022. In June 2021, during the first post-pandemic, post-Trump G7 Leaders’ Summit in Carbis Bay, Draghi stated that his government would “examine […] carefully” the MoU.[2] Draghi’s words reflected a deeper awareness of the broader implications of Beijing’s assertiveness in international politics and a close alignment with the Biden administration in Rome. This shift also reflected the absence of tangible economic benefits from BRI membership for Italy, although this was also due to the devastating effect of the Covid-19 pandemic on the designed trajectory of Sino-Italian economic relations.[3] Furthermore, the security-driven decision of the Draghi government to repeatedly exercise its “golden power” to veto Beijing’s investments in Italy’s strategic sectors contributed to shaping the MoU’s outcome.[4] This course correction in Rome’s China policy survived the fall of the Draghi government in July 2022 and the victory of the centre-right coalition led by Giorgia Meloni and her Fratelli d’Italia (Brothers of Italy, FdI) party in the legislative elections of September that year. After all, Meloni and her party had consistently opposed the MoU with China from the very beginning, a decision arguably also linked to the perceived need to bolster the party’s credentials as a reliable partner in the eyes of Washington – as in the case of the clear support for Ukraine well before the September electoral victory.
Topic:
Foreign Policy, Foreign Direct Investment, Belt and Road Initiative (BRI), and International Politics
Political Geography:
China, Europe, Asia, and Italy

7. The US–Italy Economic Relations in a Divided World

Author:
Adriana Castagnoli
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
In 2021, bilateral trade returned to the sustained pace it had prior to the Covid pandemic. Direct investment also grew – crucially, not just Italian investment in the United States but the other way round too. While Italy’s economic ties with Russia and China remain potential hotspots, Rome has never questioned its Atlantic orientation. Nevertheless, possible austerity policies following sanctions against Russia could spread social discontent that populist parties can exploit for consensus purposes in the 2023 general election, rekindling anti-Americanism rooted in different segments of Italian society.
Topic:
Foreign Policy, Foreign Direct Investment, Economic Policy, Trade, and Energy
Political Geography:
Russia, China, Italy, and United States of America

8. China in Italy: Risk Assessment and Preventive Solutions

Author:
Beatrice Gallelli and Lorenzo Mariani
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Italy’s 2019 decision to sign a Memorandum of Understanding with China in support of the Belt and Road Initiative sparked a heated debate at home and abroad. The possibility of Italy upgrading its trade and investment relations with China through the shortcut of a political endorsement of President Xi Jinping’s flagship foreign-policy initiative was framed as either a heaven-sent opportunity or a serious strategic threat. Two years on, most of the concerns pointed out in the debate, especially regarding infrastructures, have proven unsubstantiated (although the economic opportunities for which the Italian Government wished have also failed to materialise). However, cooperation initiatives between Italian and Chinese entities in sectors often overlooked in the mainstream debate, such as media and academic partnerships, do present risks. The creation of an interagency China Information and Coordination Unit would help to prevent – or, at least, to minimise – such risks. Paper prepared in the framework of the IAI project “When Italy Embraces the BRI”.
Topic:
Foreign Policy, Education, Science and Technology, Mass Media, Foreign Direct Investment, and Trade
Political Geography:
China, Europe, Asia, and Italy

9. The challenge to US hegemony and the “Gilpin Dilemma”

Author:
Giorgio Romano Schutte
Publication Date:
04-2021
Content Type:
Journal Article
Journal:
Revista Brasileira de Política Internacional (RBPI)
Institution:
Instituto Brasileiro de Relações Internacionais (IBRI)
Abstract:
This article makes a comparison between the challenges faced by the US to maintain its hegemonic position at the end of the 1970s and in the 2010s. To do so we review Robert Gilpin’s writing during the first period. He suggested the US had three options: 1) a defensive protectionist reaction 2) fragmentation of the international system 3) a new wave of innovation, (“rejuvenation”). It is argued that the Reagan administration was able to establish support for the third option. We argue the US is now faced with the same dilemma again, but with a different kind of challenger: China.
Topic:
Foreign Direct Investment, Hegemony, Conflict, and Innovation
Political Geography:
China, Asia, North America, and United States of America

10. Jagged Sphere: China’s quest for infrastructure and influence in mainland Southeast Asia

Author:
Greg Raymond
Publication Date:
06-2021
Content Type:
Commentary and Analysis
Institution:
Lowy Institute for International Policy
Abstract:
China has land borders with mainland Southeast Asia and strong strategic imperatives to develop land routes to the sea. It has both potential and motivation to pursue an infrastructural sphere of influence in the Mekong subregion through Belt and Road Initiative (BRI) projects joining southern China and mainland Southeast Asia. The poorer states, especially Laos and Cambodia, have been receptive to the BRI and infrastructure investment, but Thailand and Vietnam, strong states and protective of sovereignty, have been more cautious. This means China’s impact is significantly varied across the subregion. China’s Special Economic Zones (SEZs) in Cambodia, Laos, and Myanmar are in some cases dissolving borders and in others carving out Chinese-controlled enclaves, all increasing the People’s Republic of China (PRC) presence and influence.
Topic:
Infrastructure, Foreign Direct Investment, Regional Integration, Borders, and Belt and Road Initiative (BRI)
Political Geography:
China, Asia, Vietnam, Cambodia, Thailand, Southeast Asia, Laos, and Myanmar