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Home»Finance»Italy Wants to Exit the Belt and Road – But Without Curbing Ties With China
Finance

Italy Wants to Exit the Belt and Road – But Without Curbing Ties With China

September 21, 2023No Comments8 Mins Read
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Italy Wants to Exit the Belt and Road – But Without Curbing Ties With China
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Rome plans to exit China’s Belt and Road Initiative (BRI), as made clear by several declarations from Italian Premier Giorgia Meloni over the last year – most recently during her meeting with Chinese Premier Li Qiang at the G-20 summit in India. Meloni has repeatedly indicated that Italy will cancel the March 2019 memorandum of understanding (MoU) under which the previous government led by Giuseppe Conte joined Beijing’s connectivity project.

According to the agreement, an official decision as to whether to renew or cancel the MoU must be taken by the end of 2023. The conservative coalition in power in Rome has not yet officially decided, but the process of “BRIexit” has begun, as Meloni wants to align Italy’s China policy with that of the United States and the EU.

In engagements with Italian leaders, Beijing is lobbying hard in favor of a silent renewal of the MoU – or at least a postponement of the exit – to avoid the embarrassment that Italy’s BRIexit would cause as China prepares to celebrate the 10th anniversary of the project during the Third Belt and Road Forum for International Cooperation, to be held in Beijing in October.

Since its official launch in September 2013, the BRI has transformed itself from a “Eurasian transit corridor to an initiative with global scope,” as The Diplomat’s Shannon Tiezzi described it in a recent article. Today, 80 percent of the United Nations’ 193 member states are part of the project. These are mainly developing nations, as most of the Western and rich world has shunned the BRI – with Rome being the only exception.

Italy is the only G-7 nation to have officially endorsed Chinese President Xi Jinping’s signature foreign policy initiative. Xi invested significant political capital in bringing Italy into China’s orbit, with facilitation from local elites eager to foster commercial ties – and without much regard for the implications that this could have for Rome’s Western allies. Italy’s BRIexit will thus be a blow to Chinese leaders – though the two sides will certainly seek to minimize any “loss of face” – while being welcomed in the West.

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The Biden administration would certainly be pleased with Italy’s exit from the BRI. Meloni met with U.S. President Joe Biden in the White House on July 27. In their joint declaration issued at the end of the meeting, the two sides committed to strengthen bilateral consultations on China-related issues. The leadership of the EU is also in favor of Italy’s canceling the agreement, since this would reduce dependence on Beijing and give substance to the notion of “de-risking” ties with China, as described by European Commission President Ursula von der Leyen in a speech in March. Renewal of the accord, by contrast, will – according to the critics of the BRI – embolden the Chinese leadership at home and abroad at a time of growing tensions between the West and China.

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Italy’s disenchantment with the BRI began with Mario Draghi, Conte’s successor, and then further accelerated following the victory of a conservative coalition in parliamentary elections in September 2022. The Draghi government, in power between February 2021 and October 2022, put limits on BRI projects in Italy, blocking China’s attempts to acquire stakes in the port authorities of Genoa and the other ports in the North Adriatic Sea that had formed the backbone of the MoU. The arrival of the Meloni government halted the remaining BRI infrastructure projects, including several attempts by Chinese investors to acquire Italian assets considered of strategic significance.

Italian policymakers are disappointed regarding the bilateral trade and the greater business opportunities that were expected when the MoU was signed. According to the last report by the Italian Trade Agency, Rome’s share in China’s market has remained constant (and relatively low) at around 1.1 percent since 2020, dropping to around 1 percent in 2022. The total value of bilateral trade has grown from $55 billion in 2020 to nearly $78 billion in 2022, but with a trade imbalance in China’s favor. China’s exports to Italy increased by around $18 billion in the 2020-2022 period, while Italy’s exports to Beijing went up only $4 billion in the same period.

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Meloni thus wants to cancel the MoU and instead foster economic linkages with the Asian giant by revitalizing the Global Strategic Partnership, an accord first signed by Chinese Premier Wen Jiabao and Italian Premier Silvio Berlusconi in 2004 to boost mutual trade and investment. Whether this will fly with Chinese leaders, who are understandably disappointed by Italy’s BRIexit, remains to be seen.

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Should Meloni’s plan work, it will substitute the MoU on the BRI with a series of commercial agreements. That would signal Italy’s intention to maintain good relations with Beijing, but without the strategic implications that being part of China’s flagship geoeconomic project entails for a U.S. ally, especially at a moment when tensions are high between Beijing and Washington.

Meloni’s model in this regard is French President Emmanuel Macron. During his state visit to China in April, Macron and Xi oversaw the signing of 18 deals involving 36 Chinese and French companies to expand cooperation in several areas, including green technology, renewable energy, and industrial innovation. The Italian government wants to emulate France, a country that has never officially endorsed the Belt and Road Initiative, yet has succeeded in boosting economic ties and business opportunities with China.

Meloni’s intention to improve ties with China is based on the idea that the Asian giant has become a key player in all major international political and economic issues and that decoupling from Beijing is not an option – a view shared by most Italians. According to the Transatlantic Trends 2023 survey, 51 percent of Italians think that China will replace the United States as the most influential actor in global affairs in five years.

Italian companies are also repositioning themselves to take advantage of the Chinese market in a post-BRIexit environment, particularly those that had a positive return after the signature of the MoU. A total of 29 agreements, divided among institutional and commercial deals, were signed on the margins of the broader strategic MoU between the two governments in March 2019.

Among the success stories is Ansaldo Energia, a power engineering company controlled 88 percent by Cdp Equity (Italy’s sovereign wealth fund), with the remaining 12 percent belonging to Shanghai Electric. The agreement reached in March 2019 with the Chinese counterpart has been fully implemented; in 2021, the AE94.2 KS turbine made by Ansaldo Energia as a result of the partnership with Shanghai Electric has become fully operational and a similar project is in the pipeline.

Another company that has largely benefited from the BRI is Intesa Sanpaolo, the largest banking group in Italy. In the context of the broader strategic MoU, Intesa Sanpaolo signed an agreement with the Municipality of Qingdao for the development of a designated wealth management Pilot Zone. As a result, Intesa Sanpaolo became the first foreign bank to offer wealth management services in China through a wholly-owned subsidiary. In December 2019, the bank received the Silk Road Award for its work in fostering Italy-China ties.

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Intesa Sanpaolo is also one of the main European banks connected to China’s Cross-Border Interbank Payment System (CIPS), an alternative to the Western-dominated SWIFT. Through CIPS, the Italian bank clears yuan-denominated funds used to finance projects under the BRI. There is every reason to think that Intesa Sanpaolo’s romance with the Belt and Road will continue even after Italy’s BRIexit.

Alongside companies, several localities in Italy are pursuing projects under the BRI autonomously from the central government – and are likely to continue to do so after Meloni cancels the MoU. Italian media have recently reported that around 10 municipalities and the province of Brescia – the biggest province of the northern region of Lombardy, Italy’s industrial heart – are cooperating directly with China through the local government equivalent of the BRI, the Belt and Road Local Cooperation (BRLC) Committee. On its website, the BRLC is described as an initiative that complements the government-level BRI by organizing various programs and cooperation activities with local governments to foster relations between people and not just between states.

The number of Italian municipalities, provinces, and regions that have established links with the BRLC is probably quite significant – possibly in the hundreds – as local authorities in Italy enjoy a high degree of autonomy in these matters. Moreover, China has intensified lobbying directly aimed at local governments, bypassing more skeptical policymakers at the national level. This trend shows the effectiveness of local pro-China lobby associations, which in recent times have adapted to Beijing’s matured approach to BRI projects: Since 2021, Xi Jinping has called for investors to focus on “small but beautiful projects.”

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Italy’s BRIexit will thus be a very important symbolic act, but devoid of much substance regarding economic ties. The central government, companies, and local authorities in Italy will likely continue, and even boost, relations with China across the board – much to the dismay of Italy’s Western allies that were hoping Meloni would “de-risk” from Beijing.

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