Meet China’s Newest, Biggest Belt and Road Partner: Italy

Moody's downgrade of Italy came after markets closed, but Rome's budget dispute with Brussels weight on shares all week

Italian officials on Wednesday said their government will officially endorse China’s massive Belt and Road Initiative (BRI) later in March, becoming the first G-7 nation to sign on to Beijing’s plan for spreading its political and economic influence around the world.

The Financial Times quoted Italian Undersecretary of Economic Development Michele Geraci, who said Italy is currently in final negotiations with China to sign a memorandum of understanding in support of Belt and Road. He said the negotiations might be concluded in time for Chinese President Xi Jinping’s visit on March 22. Xi is scheduled to meet with Italian President Sergio Mattarella and Prime Minister Giuseppe Conte.

“We want to make sure that ‘Made in Italy’ products can have more success in terms of export volume to China, which is the fastest-growing market in the world,” Geraci said.

The Financial Times anticipated the memorandum of understanding would contain no binding agreements but would declare Italy “highly appreciates and supports” Belt and Road, paving the way for major Chinese investments and loans.

These rumblings of Italian support for BRI well not well-received in Brussels, not least because Xi’s visit to China – which might well coincide with Italy’s formal declaration in favor of Belt and Road – will come only one day after a European Union meeting at which Chinese investments will be a major topic of discussion.

The EU recently increased regulatory scrutiny of Chinese investments and acquisitions, citing concerns about technology theft, national security vulnerabilities, and China’s growing political influence. Chinese investment in Europe plunged 40 percent last year, partially as a consequence of tougher regulation, although China’s wobbling economy and pressure from Beijing for Chinese firms to trim their investment portfolios were likely factors as well.

The EU expressed concerns that Italy is acting on its own at a moment when Europe is attempting to develop a consistent, politically unified approach to Chinese investment and pushing China for greater transparency and a “level playing field.” The even darker fear lurking on the horizon is that China will peel off eastern European states and the most cash-hungry nations to shatter the EU.

Washington, of course, was even less pleased with Italian support for Belt and Road than Brussels. The Financial Times obtained an instant reaction from the White House:

“We view BRI as a ‘made by China, for China’ initiative,” Garrett Marquis, White House National Security Council spokesman, told the Financial Times. “We are sceptical that the Italian government’s endorsement will bring any sustained economic benefits to the Italian people, and it may end up harming Italy’s global reputation in the long run.”

Mr. Marquis said US officials had raised concerns about what he called the negative effects of “China’s infrastructure diplomacy”, and urged “all allies and partners, including Italy, to press China to bring its global investment efforts into line with accepted international standards and best practices.”

The “negative effects” Marquis referenced include debt colonialism, which CNBC summed up on Wednesday as China using Belt and Road to force “developing nations to take on high debt burdens while benefiting Chinese companies which are often state-owned.”

If Italy becomes the largest economy to endorse Belt and Road, it will give the project a valuable dose of legitimacy at the very moment countries like Malaysia, Pakistan, and Bangladesh are scaling back or canceling BRI projects.

CNN suggested Italian support for BRI could influence Europe’s debate over using Chinese technology in their 5G wireless networks. European customers are interested in the low prices offered by suppliers like Huawei, but nervous about the possibility that Chinese equipment could include deliberate “backdoor” vulnerabilities to facilitate Chinese espionage or sabotage.

According to Chinese media reports quoted by CNN, “recession-hit” Italy dispatched a “China Task Force” in October to investigate economic opportunities and discuss supporting Belt and Road. Chinese officials were very pleased with the outcome of these discussions.


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