Italy to Sign Off on Belt and Road Initiative

Michele Geraci, an Undersecretary in Italy’s Ministry of Economic Development, has stated that the country is formally planning to back China’s Belt and Road Initiative. If so, it would become the first G7 nation to do so and one of the few EU nations to have signed off on the project. Brussels is already known to be highly critical of the Belt and Road Initiative.

Rome is apparently preparing to sign a memorandum of understanding to officially support the project at the end of March to coincide with the state visit of Chinese PremierXi Jinping. “The negotiation is not over yet, but it is possible that it will be concluded in time for Xi’s visit,” Geraci told the media. “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.”

China’s Xi Jinping is due to pay an official visit to Italy on March 22. After that, Xi will reportedly head to France and ultimately the US for further negotiations to resolve the current trade stand-off between Beijing and Washington.

Italy’s move has not been received well in Washington. According to the White House, the Belt and Road Initiative will not help Italy economically and may significantly damage the country’s international image.

“We are skeptical 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,” US National Security Council spokesman Garrett Marquis told the media.

The MoU that Italy is expected to sign is likely to be similar to this document obtained by Dezan Shira & Associates here. Chris Devonshire-Ellis of Dezan Shira & Associates comments, “There is no real legal risk in these types of MoU. Most of the content is ambivalent and woolly in the extreme. There is no real commitment, financial or otherwise within these MoU. Media and politicians like to exaggerate their importance. Most of it is in fact fluff.”

Italy is the 7th largest export economy in the world and the 20th most complex economy, according to the Economic Complexity Index (ECI). In 2017, Italy’s exports amounted to US$482 billion and imports US$441 billion, resulting in a positive trade balance of US$40.8 billion. In 2017, the GDP of Italy was US$1.93 trillion and its GDP per capita was US$39,400. China-Italy bilateral trade is currently worth about US$32 billion per anum.

Chris Devonshire-Ellis, Chairman of Dezan Shira & Associates comments: “The China-Italy relationship has long been positive, and changing political dynamics in the EU mean that Italy will probably ignore Brussels’ directives on this issue. Rome is also becoming closer to Moscow, again a nation with which the Italians have long had commercial and cultural ties. The logical next step for Rome is probably unofficial talks with the Eurasian Economic Union. Italy cannot sign off any EAEU free trade deal while it is a member of the EU, yet Rome may wish to see how far it can push Brussels and how far Moscow is prepared to give to facilitate EAEU access without an actual FTA.”

Alberto Vettoretti, Managing Partner of Dezan Shira & Associates in China comments: “The previous Italian prime minister, Paulo Gentiloni was one of the few Western leaders to attend the inaugural Belt and Road conference in Beijing (although he did not sign a MOU), indicating that Italy always showed interest in having a closer relationship with China. This is in spite of the mounting criticism in Washington and Brussels.
The Italian stance does not appear to be changing; in fact, quite the reverse is true as the populist government is now challenging Brussels policies in legal actions over agriculture, financial, and immigration policies – it will not be a surprise if they do sign a Belt and Road MoU.

The EU on the other hand wants a united front, limiting strategic Chinese investment in Europe. However, the current Italian government seems to have different ideas. China has already invested a lot in Italy in strategic sectors while Chinese companies such as Huawei are not frowned upon as elsewhere in the West and have been awarded major contracts. The current under-secretary for economic development (Mr. Geraci) lived in China for 10 years, and is influential over how the Italian government deals with China.

Key points for the Italian government as concerns China and the Belt and Road Initiative is that the south of Italy is in desperate need of infrastructure investment and the current government has its hands tied. As they cannot expand their fiscal deficit under current EU rules, Chinese investment or cheap financing or infrastructure to create economic activities will obviously be welcomed.

At Dezan Shira & Associates Italian offices in Treviso and Udine, we understand there are already discussions concerning port investments in the south of Italy, including in Genoa and Palermo. We do not think these possible investments will be huge or will create a diplomatic “disaster” to harm relationships with other western countries. The COSCO investment in the Greek Pireaus port is a success story, suggesting that should similar projects go ahead in southern Italy, these would bring additional benefits to the local community, to Italy’s export potential to China and other countries along the Belt and Road, and, perhaps more importantly, Chinese/Asian exports into Africa (from Sicily and Calabria). China will also have its flag on the map very much within the EU, a major coup for Beijing.”

Related Reading:

Vassal States? Understanding China’s Belt and Road MoU

“Here There Be Dragons” How Brussels is Losing Influence in Central and Eastern Europe

The Case for Leaving the EU and Joining the Eurasian Economic Union

How Foreign Businesses Can Prosper from China’s Belt and Road Initiative: Exploit the Infrastructure