Marco Polo Part ll

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No two countries in the world can lay claim to the vibrant Silk Road legacy more than China and Italy.

Giancarlo Elia Valori looked thoughtfully down from his sprawling office balcony overlooking the Circus Maximus ruins in Rome, the glow of another imperial sunset reflecting softly off the Colosseum in the background. Valori turned to the latest in a round of visiting Chinese dignitaries to have the privilege of standing on the legend’s balcony. David Tang had made the pilgrimage from Beijing, taking time off a busy schedule running a multi-billion Chinese private equity group focused on agriculture and industry to meet Valori on issues related to Italian high finance. 

“Signor Tang, you have no idea how important it is for China and Italy to join forces in the rebuilding of the Silk Road,” reflects Valori, the 76-year old diplomat, banker and advisor to Prime Ministers and leaders both in Italy and around the world. No Italian believes more in the importance of this joining of hands to connect the new Silk Road network than this man at this moment. Proudly waving a plaque commemorating his appointment as Chairman Emeritus for Huawei Italy, Valori adds, “Sometimes I just don’t understand why Italians don’t move faster to grasp this opportunity.”

No one has done more to bring these two Silk Road nations together over the course of the last four decades than this Venetian, born in the hometown from which Marco Polo set an agenda for the Silk Road that would change history forever. From his first meetings with paramount leader Deng Xiaoping in the 1970s to more recent hugs with Jiang Zemin and Hu Jintao, Valori’s scrapbook is filled with the most amazing array of Chinese leaders and friends. Even at this ripe age, the visiting professor of international relations at illustrious Peking University will set off on a trip to China on one mission or another to claim yet more awards at any given moment.

Explorer Marco Polo would have walked through the Square that bears his name on his way to China.
Explorer Marco Polo would have walked through the Square that bears his name on his way to China.

It is not that Italy and China are not actively engaged on a global scale. After all, when Italy’s Cassa Depositi e Prestiti (CDP) approved the sale of a 35% stake in its energy grid holding company to China’s State Grid Corp. for some €2.1 billion a new level of trust between Italy and China was established. In July 2014, Italian Prime Minister Matteo Renzi hosted the signing with China’s State Grid International Development Ltd. (SGID), a wholly owned subsidiary of State Grid.

In March 2015, China National Chemical Corp. (ChemChina) bought Pirelli, the world’s fifth-largest tire maker, in a €7.1 billion deal that placed one of the symbols of Italy’s manufacturing industry in Chinese hands. Excluding the financial sector, Italy is the second biggest acquisition market for China in Europe and fifth largest worldwide, according to Thomson Reuters data. Pirelli was the first major acquisition since a China mining consortium bought Peru’s Las Bambas copper mine in 2014.

“There is no doubt that Italian creativity, technology and style are of great value to a country looking to rebuild its economy around the high-tech industry 4.0 world,” says Giorgio Fossa, former President of General Confederation of Italian Industry (Confindustria), the all-powerful Italian employers’ federation and national chamber of commerce that groups over 113,000 member companies accounting for nearly 4.2 million workers and the new President of Sole 24 Ore,  Italy’s leading daily newspaper.

Still an influential voice in the Confindustria hierarchy, Fossa spends his time these days as the Sole Director of Silvio Fossa SpA, a company operating in the design, manufacture and assembly of hydraulic cylinders, pneumatic and rotary, standard and special tools. Nor is Fossa unfamiliar with China. In 2005 Fossa made the effort to complete a joint venture in Shanghai to form Fossa-Kinsson. “Italy needs the Chinese market, and China needs Italian industrial expertise. Besides, no industrial region in Europe is bigger, wealthier and more powerful than Lombardy,” notes Fossa from his office close to the trendy and affluent shores of Lake Como.

AFC’s David Tang attends high level meetings in the VIP room at the Italian Ministry of Agricultural, Food and Forestry Policies.
AFC’s David Tang attends high level meetings in the VIP room at the Italian Ministry of Agricultural, Food and Forestry Policies.

Agriculture Ties

Nor is this relationship all about industry. Just ask Luca Galli, Managing Director and Chairman of Minoprio Foundation, the largest and most important agriculture research and training facility in Italy, if not Europe. Galli, who doubles as Chairman of Serenissima, one of the largest property fund managers in Italy with over €2 billion of assets under management, points out it is the Italian lifestyle of good food, fine wines and the best fashion can offer that is equally attractive to the Chinese business and investment community.

“Food security is one of the most important issues China faces today,” notes Galli, who just opened relations with the renowned China Academy of Agricultural Sciences in an effort to build bridges between the Italian and Chinese agriculture sectors. “Italy is considered to have the highest standards when it comes to food regulations, and we can bring that expertise to bear for China. Through groups like Minoprio, Chinese agriculture companies can enter Europe and transfer all important food processing technology as well as establish new cross-border business.”

Prior to his rooftop visit with Valori, David Tang, Chairman of the Agriculture Fund of China (AFC) and Kings Brothers Capital, was ushered into the Ministry of Agricultural, Food and Forestry Policies by Galli. Tucked in a side street not far from Rome’s Central Station, the weathered, wooden floored halls of the Ministry look very much like the ministries of old in Beijing.

Tang and Galli were invited to a massive conference room replete with the portraits of every Agriculture Minister on the wall since the founding of the Republic. On hand to greet the duo was Andrea Olivero, the newly-appointed hands-on Deputy Agriculture Minister and Enrico Pollo, Technical Secretary to Olivero. The Italian officials were well aware of the possibilities of working with China and spoke in the most positive terms.

Pollo also knew China well from his days in 2013 sitting on the board of Smithfields Foods Inc. during the almost US$5 billion takeover by state-owned holding company Shuanghui International Holdings Ltd., the world’s largest pork producer and processor. “We are open to all sorts of cooperation with China in the agriculture sector,” remarked Pollo, echoing the words of Olivero. “Italian agriculture and food companies are most interested to partner with Chinese counterparts in an effort to dramatically increase the market potential of their quality goods and gain better access.”

Banca Intesa's Franco Ceruti believes Italy has a critical role to play on the Silk Road.
Banca Intesa’s Franco Ceruti believes Italy has a critical role to play on the Silk Road.

Banking Card

Whether in agriculture or industry, the combination of China and Italian business will need financing. In the form of debt capital for merger and acquisitions or loans for expansion, commercial and investment banks are going to have to step up to the table from both countries. While China’s financing prowess is already well established in today’s world, it is important to understand that the Italian banks are ready and able.

Take Intesa Sao Paolo, one of the best-capitalized banks in Europe with total assets of over €700 billion and 4,000 branches serving more than 11 million Italian customers. The bank is well placed on the Silk Road, with a strong commercial banking presence in Central and Eastern Europe, the Middle East and North Africa. Through an international branch network that reaches 8.1 million clients in 12 countries and 1,200 branches, the Intesa reach in the western Silk Road corridor surpasses that of any China bank.

This behemoth of a European bank is backed by its investment bank Banca IMI, ranked as the strongest investment bank in Italy year-in and year-out and one of the most competitive European financial institutions. It is not that Intesa does not know or understand China. After all it runs Asia from its Hong Kong hub and boasts offices in Beijing and Shanghai. The issue for the bank is the same as that facing all Italian enterprises, or all those in Europe for that matter: What is the best way to do business with China?

Franco Ceruti has been with the bank since he retired from his football career over 50 years ago. Today, Ceruti is one of the elite members of the Intesa Board of Directors. Given that all important decisions in Italy or around the world are made by the board, Ceruti has a good insight on where business is headed and what his bank can achieve. Currently, Intesa is closely surveying the Silk Road scene and working to understand what is the best way to benefit from the One Belt, One Road vision.

“The Silk Road is something that is popping up on radar screens all across Italy these days,” notes Ceruti. “Yet, it is a relatively new initiative and we are all trying to figure out how does Italy fit in and what needs to be done to capture this opportunity. Needless to say, we are open to the opportunity and we have the resources to do this business. Currently, we already support Italian industry in a number of Silk Road countries, from Istanbul to Dubai, Ho Chi Minh to Cairo – we plan to do more.”

Ceruti is certainly aware of the prowess of the Chinese institutions when it comes to Silk Road financing, but he believes Intesa has the ability to make its mark and win business on the back of deep European capital markets. “Never mind our long proven capacity to make loans, there is no reason why we cannot use public debt markets to provide funding for Silk Road projects and Chinese enterprises looking to expand in Europe,” states Ceruti. “We have a stellar distribution network and we can issue bonds or make loans at a much lower cost of capital than Chinese enterprises can achieve
at home.”

Rome’s Fountain of Trevi exemplifies the beauty and culture that makes Italy famous.
Rome’s Fountain of Trevi exemplifies the beauty and culture that makes Italy famous.

Marco Jacobini, Chairman of Banca Popolare di Bari, and his CEO Giorgio Papa, agree with Ceruti, but have a different angle on how their bank can work with China in the coming years. Bari has long been the financial dynamo of the south and central parts of Italy. For those that may not be aware of the regional competition between the northern industrial hub led by Lombardy Region and activities south of Rome, the rivalries are intense and the fundamentals of business different.

Chinese groups like the Agricultural Bank of China and China Development Bank would appreciate the nature of this cooperative. Known as the Peoples’ Bank, Banca di Bari is owned largely by its depositors of small businessmen, farmers and households in the South. Proud of its strong capital base and in the midst of a wide scale restructuring to re-launch the bank as “super strong” in the South of Italy, Banca di Bari is one of the nation’s fastest growing institutions and a group to watch. 

“We do not claim to be an international bank, but that does not mean we do not live in an international world and ignore the importance of our client base to do business and make investments in China,” notes Jacobini. “We are one of the country’s strongest capitalized banks and we have the ability to lend to good projects and introduce Chinese companies to the right partners, not to mention distributing bonds and funds to our retail base.”

Papa is leading the charge to bring Bari into a new age. He works hand in hand with Jacobini to execute a strategy set to culminate in 2020 with a top ranked institution on a European basis in Europe. “Many European banks simply cannot support new business due to the problems they face with their capital ratios. The simply have no room,” explains Papa. “That is not true for Bari. We have a strong deposit base which supplies us capital from deposits at nearly zero cost, and we are eager to use that wisely to further develop our activities, including those with China.”

So, perhaps Valori can take hope and see his dream come true: the rebuilding of the Silk Road with Italy as a foremost partner with China – just like in those long gone days when Marco Polo made his mark on the Middle Kingdom.