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UNCLAS SECTION 01 OF 03 ROME 000140 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD CH IT
SUBJECT: ITALY'S TRADE AND INVESTMENT WITH CHINA 
 
REF: 05 ROME 02547 
 
SUMMARY 
======= 
 
¶1.  (U) Trade and investment between Italy and China will 
reach record levels in 2006, likely surpassing 2005's 18.7 
billion euro in trade.  The countries made a concerted effort 
to increase bilateral trade and investment in 2006, including 
the largest-ever Italian trade delegation to China and 
concluding agreements to stimulate investment and joint 
ventures.  Bilateral trade and cooperation will likely 
increase if a three-way agreement routing Chinese export to 
Europe through the Suez canal and southern Italian ports is 
finalized.  End Summary. 
 
ITALY-CHINA TRADE 
================= 
 
¶2.  (U) Italian imports from China have doubled since 2000, 
and Italian exports to China have also risen sharply.  China 
is Italy's fourth largest trading partner, providing 4.6 
percent of imports. 
 
Italy-China Trade Figures (billions of euro) 
(Source: Italian Statistical Agency (ISTAT)) 
 
          IMPORTS         EXPORTS 
2000      7.0             2.4 
2001      7.5             3.3 
2002      8.3             4.0 
2003      9.6             3.9 
2004      11.8            4.5 
2005      14.1            4.6 
2006*     13.3            4.1 
 
*Provisional figures for January - September 2006 
 
¶3.  (U) Italian exports to China are comprised primarily of 
metals, textiles, petroleum and related products, machinery 
and equipment, scientific and process control instruments, 
and road vehicles.  Exports of plastics, inorganic chemicals, 
and other chemical materials and products have increased 
considerably in the past year. 
 
¶4.  (U) Almost all categories of Chinese exports to Italy 
have increased from their 2005 levels.  Manufactured goods, 
such as leather, apparel, clothing accessories, footwear, 
gold, photographic equipment, and miscellaneous manufactured 
articles had especially large increases.  Many of these goods 
are counterfeit and labeled "Made in Italy."  Many are also 
indistinguishable from the originals.  These pirated goods 
are a cause of negative reactions among many Italians who 
resent the growing Chinese presence. 
 
 
PRODI DELEGATION VISITS CHINA 
============================= 
 
¶5.  (U) Italian PM Romano Prodi led a delegation of 
government officials and over 700 business leaders on a 
six-day visit to China in September 2006 (reftel).  This was 
the first high-level delegation to visit China since 2004. 
The delegation traveled to Nanjing, Guangzhou, Shanghai, 
Tianjin, and ended in Beijing.  Throughout his visit, Prodi 
sought to conclude trade agreements through meetings with 
Chinese officials.  During Prodi's visit to the port city of 
Tianjin, trade representatives signed agreements on seven 
cooperation programs worth 192 million dollars.  Prodi also 
attended the China-Italy Small and Medium Enterprise fair, 
where over 4,000 Chinese and 760 Italian companies displayed 
their products and services.  Roughly 90 percent of Italian 
companies are SME's. 
 
ITALY-CHINA-EGYPT SHIPPING AGREEMENT 
==================================== 
 
¶6.  (U) Italy, China, and Egypt are negotiating a three-way 
agreement to route Chinese exports to Europe through the Suez 
Canal and making southern Italy the main entry point for 
Chinese exports to Europe.  Italian PM Romano Prodi discussed 
the issue in Cairo with Egyptian Trade and Industry Minister 
Rachid Mohamed Rachid in December, and also with officials in 
Beijing in November.  When implemented, the agreement will 
 
ROME 00000140  002 OF 003 
 
 
help create jobs in the South, Italy's poorest region, and 
will further increase Italian trade with China. 
 
ITALIAN INVESTMENT IN CHINA 
=========================== 
 
¶7.  (U) Cooperation between Italian and Chinese companies 
grew in 2006, especially among larger enterprises.  As of 
September 2006, there were 1,428 Italian companies operating 
in China.  The following are among the most notable 
developments in 2006. 
 
Heavy Industry 
-------------- 
 
¶8.  (U) In July 2006, Fiat subsidiary Iveco and Shanghai Auto 
agreed on a 50/50 joint venture worth 300 million dollars to 
produce heavy-duty trucks in Chongqing.  At full production 
capacity the joint venture will have an annual production 
capacity of 40,000 heavy-duty trucks and 30,000 engines by 
¶2008.  Also in heavy industry, Italian firm Globeco entered 
into a venture with a Chinese state-owned company to produce 
150 pollution cleaning vessels in the Changsha Shipyard in 
Hunan.  The initial production is valued at 75 to 100 million 
euro. 
 
Financial Services 
------------------ 
 
¶9.  (U) PM Prodi and Chinese PM Wen Jibao agreed to the 
creation of a 225 million euro private equity fund by Italian 
Intesa San Paolo IMI, China Development Bank, and China Exim 
Bank.  The fund, Mandarin Capital Partners, will pursue 
ventures between medium-sized Chinese and Italian companies 
providing 25 million euro capitalization for each company. 
Separately, Assicurazioni Generali established the Generali 
China Life Insurance Company with capital worth 168 million 
euro, and obtained permission in 2006 to begin operating in 
the non-life insurance sector. 
 
Textiles 
-------- 
 
¶10.  (U) In the textiles sector, Italian Montefibre joined 
with Jilin Qifeng Chemical Fiber in a 160 million dollar 
joint venture to produce acrylic fiber. 
 
Electronics 
----------- 
 
¶11.  (U) Eurotech Group signed an agreement with the 
government-owned Shaanxi Baocheng Aviation Instrument Co. to 
produce two million euro of computers annually.  The Sacmi 
Group began operations at a new plant in Nanhai dedicated to 
producing machines and spare parts for the ceramic industry. 
 
Retail 
------ 
 
¶12.  (U) Versace has five outlets in China and has announced 
plans to open nine additional stores at a cost of eight 
million euro, while Benetton is preparing to open 200 stores 
in China by 2008. 
 
CHINESE INVESTMENT IN ITALY 
=========================== 
 
¶13.  (U) Chinese investment in Italy remains relatively 
small.  In 2005, Chinese investment in Italy totaled 102 
million dollars, sixteen percent of the 640 million dollars 
Italian businesses invested in China in that year.  Higher 
production costs and a complicated bureaucracy have deterred 
Chinese investment.  In 2006, the Anhui Jinghuai Automobile 
Group opened a research and development center in Turin, 
which employs Italian researchers dedicated to designing new 
vehicles. 
 
¶14.  (U) In May of 2006, 30 Chinese entrepreneurs visited 
Milan to explore investment opportunities in the textile, 
fashion, auto components and financial sectors.  Italian and 
Chinese trade commissions signed a memorandum of 
understanding in November to promote cooperation of SME's in 
the two countries.  The memo includes organizing seminars, 
business delegations, exhibitions and expositions, and 
 
ROME 00000140  003 OF 003 
 
 
corporate training. 
 
EU ANTI-DUMPING MEASURES 
======================== 
 
¶15.  (U) On October 4th, 2006, the EU approved controversial 
measures to impose anti-dumping measures against shoes 
imported from China.  Italy lobbied aggressively for tariffs 
of 16.5 percent which will now be levied on Chinese leather 
shoe imports for two years.  The EU claims European footwear 
production has fallen by 30 percent causing a loss of 40,000 
jobs in the sector.  Chinese leather shoe exports to the EU 
increased by 450 percent from 2004-2005, totaling 206 million 
pairs. 
 
COMMENT 
======= 
 
¶16.  (U) Italian businesses attitudes towards China, and 
Chinese competition, are slowly evolving.  From the earlier 
knee-jerk protectionism that manifested itself in the EU's 
anti-dumping measures, Italian attitudes seem to be shifting 
to an "if you can't beat them, join them" position.  Italian 
businesses, especially ones most susceptible to competition 
from low-cost Chinese labor, are establishing a manufacturing 
and retailing presence in China in an effort to take 
advantage of low labor costs and sell luxury brand goods to 
China's growing middle class.  The transshipment agreement 
between China, Egypt, and Italy is another case in which the 
Italian government, recognizing that Chinese imports are here 
to stay, is trying to ensure that Italy extracts whatever 
benefit it can from the growing quantity of Chinese goods 
exported to the EU.  End comment. 
SPOGLI