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Editor in chief: Angelo Scorza
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08/01/18 10:30

Switzerland holds the balance of the new Silk Road

These are main conclusions drawn by a study on the Swiss Confederation's participation in the Chinese Belt and Road Initiative carried out by Easternational

Due to its military neutrality and commercial pragmatism, Switzerland has unequalled relations with Beijing. 

This is what emerged from a study on the Swiss Confederation's participation in the Chinese Belt and Road Initiative (BRI) carried out by Easternational, the think tank headed by lawyer Marco Marazzi to analyse the Eurasian economic integration phenomenon, boosted also by the Chinese Silk Road project launched by President Xi Jinping in 2013 to develop Eurasian integration by creating a land and sea connection network, and the opportunities that said integration offers to European companies, in particular Italian ones working in China, Central Asia and Russia.

The contribution to the internationalization of the Renminbi and the free trade agreement signed recently strengthened the relations between the two countries.

Moreover, the Swiss companies' experience in infrastructures can lead to significant innovations to carry out BRI related projects.

On the other hand, the delay in infrastructure innovation in the Italian railway network could hinder the flow of goods between Northern and Southern Europe, and the decline of Italian ports is not helping either.

The free trade agreement between Switzerland and China represents a great opportunity also for Italy as Mediterranean ports, and especially the port of Genoa, are closer to the Swiss border, however several investments are needed both in ports and in connections to ports.

Easternational's analysts Stefano Basilico and Andrea Mazzucotelli observed that, among the numerous privileges of the Swiss Confederation there is its unique relation with China.

During the European colonial period, Swiss merchants benefited from excellent contracts, extraterritorial rights and consular protection, but it was after the proclamation of the People's Republic that relations between Switzerland and China became stronger. As a matter of fact, Switzerland was the first western country to recognize the People's Republic of China in 1950.

Deng Xiaoping's economic reforms and China's entrance in the United Nations Security Council in 1971 further boosted relations between the two countries, especially as regarded the pharmaceutical, textile, chemical, technology and telecommunication sectors.

In 2007, they signed a memorandum of understanding to “strengthen relations” between the parties, while in May 2013 China signed with Switzerland its first free trade agreement with a European country. In 2015, another memorandum of understanding was signed between the Swiss National Bank, its Chinese equivalent and the World Economic Forum for the internationalization of the Yuan.

In April 2016, President Johann N. Schneider-Amman signed a collaboration agreement for strategic innovation, and in January 2017, during his visit to Bern for the Davos Forum, the Chinese President was welcomed by the Swiss Federal Council's President Doris Leuthard, and the two governments signed 10 dossiers (protocols, agreements and conventions).

The opening of the Swiss Central Bank to the Chinese currency Reminbi strengthened banking and financial relations between Switzerland and China. In July 2014, the two central banks signed a bilateral agreement to exchange currencies up to 21 billion CHF, while in January they signed the official internationalisation agreement, followed by the request by China Construction Bank for a Swiss banking license four months later. Opening the banking market is necessary to ensure the reciprocity needed for Swiss institutions to enter the Eastern market and for currency exchanges.  China chose Bern to test a possible expansion of its banking arrangements with other countries.  

“We are not a threat to China because we are not geopolitically active, we are not EU members,  we have an open market and a stable economy, and historical relations with China”, Swiss Secretary of State for International Finance Joerg Gasser explained.

The BRI is another opportunity to strengthen relations between the two countries. Although Switzerland is not on the busiest BRI routes and it does not have ports, the development of railway connections is an opportunity that cannot be missed. The giants that contributed to the creation of the Swiss railway and motorway network could play a vital role in the construction of the BRI infrastructure network.

In 2016, China was the fifth larger importer of goods into the Swiss Confederation, with a volume of 12,284 million of CHF, boosted by the increasingly close economic relations between the two countries, favoured by the FTA, by Switzerland's strategic position between the Mediterranean and Northern Europe and by the latter's ability in creating efficient infrastructures.

As Switzerland is not on the sea, goods must reach it either by airplane or by land, therefore railways seems to be the best mode to export goods into the Confederation. In this respect, it is important that Switzerland shares its railway technology (distance between tracks, power supply, signalling system) with northern Europe (especially Germany), and German-speaking Switzerland in particular can easily receive goods arriving by sea in the Netherlands or Germany.

Unfortunately, on the Italian border there is a capacity shortage on the busy railroads Monza-Chiasso and Milan-Rho-Gallarate-Luino/Domodossola. Moreover, power supply, operation and safety devices used in the Italian networks are completely different from those used in Switzerland. However, Genoa/Milan – Switzerland connections are frequent, and the Italian network is being strengthened: the Third Pass between Piedmont and Liguria should be completed by 2021, the railroad Rho-Parabiago will be quadrupled, the railroad Parabiago-Gallarate will be tripled by 2030, and the Monza-Chiasso one should be quadrupled after 2050.

Despite difficulties, in January 2017 a 550 meters freight train – organised by Yiwu Timex Industrial Investment Co, coordinated by InterRail on behalf of China Railway Corp.'s international division and carried out by local railway companies – departed from the Chinese province of Zhejiang and reached London in 18 days.

According to recent data gathered by the Chamber of Commerce of Lugano, the trade volume between Ticino and countries most involved in the BRI is increasing as metals, vehicles and luxury watches are exported to Hong Kong (+19%), China (+14%) and Russia (+31%).

Ticino is establishing close connections also with Kazakhstan, one of the crucial nations for the BRI. Due to its nearness to Italy and Mediterranean ports, as well as to the Gotthard Base Tunnel, Ticino is a privileged entry point for goods travelling between Northern and Southern Europe.

The Gotthard Tunnel allows Ticino to access Lucerne, Zurich and Basel more efficiently, while in Italy they are planning to expand the Brenner Pass (2030-2040). Similarly, the connection between Como, Chiasso and Lugano needs to be expanded, or traffic should be transferred to the Arcisate-Stabio railroad, which should be opened soon.

With the opening of the Ceneri Base Tunnel, trucks will be transported by train, resulting in an increase in trade volumes.

All these issues will be discussed during the meeting organised by Easternational in Genoa at the end of January 2018 in collaboration with RINA, Genoa Municipality and Baker McKenzie, of which Marazzi is a partner as he deals with international corporate and trade law, with a focus on Asian countries. 

Angelo Scorza

 

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