Italy’s exports to China are booming and it’s not clear why Ship’s crew

(Bloomberg) –

Italy’s exports to China have tripled in just over a year. The problem is that even experts have trouble explaining why.

Overseas shipments rose to more than 3 billion euros ($3.3 billion) in February, up 131% year over year. This follows another 137% gain in the previous month. For comparison: In January 2022, Italy exported goods and services worth around 1 billion euros to the second largest economy in the world.

Under normal circumstances such a boom would be difficult to explain. Now that Russia’s war in Ukraine and supply chain unrest are distorting traditional trade flows, it’s downright mysterious.

First, consider the politics. Italy may be the only country in the Group of Seven to have signed China’s mammoth investment plan, the Belt and Road Initiative, but the economic benefits of such an alliance have been limited since 2019.

In addition, relations had already cooled significantly under Prime Minister Mario Draghi. His successor, Giorgia Meloni, has signaled to US officials that she will pull out of the controversial China deal before the end of the year.

What makes the data even more puzzling is the fact that it’s about a very specific sector: pharmaceuticals. More specifically, they are “medicinal products consisting of mixed or unmixed products for therapeutic or prophylactic purposes put up in measured doses.”

Exports of this product group rose to 1.84 billion euros in February, after 98.5 million euros in the previous year. They accounted for almost two-thirds of all Italian exports to China.

Why the top? Italian media have speculated that the driving force is China’s uncontrolled demand for a UDCA, a chemical used primarily in liver drugs that is said – without justification – to help prevent Covid. So the sudden end of China’s zero-Covid strategy and the subsequent spread of the virus through wildfires across the country could be the reason for the export boom, although the vast majority of the Chinese population appeared to have contracted Covid in December and January, meaning that that it would have recovered earlier Italian exports started to increase.

But the UDCA demand alone does not explain the export peak.

Industria Chimica Emiliana, the Italian company that is the world’s largest integrated producer of UDCA and bile acid products, has annual sales of around 300 million euros, accounting for just a fraction of the increase in Italian pharmaceutical exports to China.

Adding to the uncertainty, recent Chinese data offers little evidence that these products are entering the market in bulk. Considering delivery times, the drugs – whatever their nature – should have made it to China to be included in the April trade data, but there was no discernible change.

One explanation could lie in the shift in regional trade.

“It’s probably a demand for medicines from China,” said Peter Ceretti, a director of Eurasia Group who is investigating the matter. “Bigger Italian pharmaceutical manufacturers supply as many Italian-made products as possible. And maybe some will also transport German and other medicines manufactured in the European Union to Italy in order to export them back to China.”

–Assisted by James Mayger.

© 2023 Bloomberg LP

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