Italy Will Withdraw From Belt and Road

 

Photo source: Deccan Herald

By Naveed Qazi | Editor, Globe Upfront

In 2019, Italy shocked the world by becoming the first G7 country to  join China’s Belt and Road Initiative. As the deal’s renewal comes ahead in March 2024, Italy is poised to withdraw from the initiative, due to unmet promises and country’s strategic re-analysis of China.

The Belt and Road had enticed Italy because it was looking to expand its exports in the Chinese market. At that time, many Italian politicians felt abandoned by Europe, as its populist government was skeptical of the European Union.

Xi, on the other hand, had his own reasons to seek favours from Italy. Historically, it served as a major terminus for ancient Silk Road, and Italy’s inclusion in the Belt and Road helped to signature his foreign policy, as he compared it to the golden age of Chinese prosperity and influence. There were other reasons as well. Italy is home to the largest Chinese population in Europe, and shares deep linkages in the production of fabrics, leather, and goods. As China looked to increase its influence in Europe, it sowed divisions between Washington and Brussels, and Italy appeared to be a point of influence for them.

It soon became apparent that Belt and Road couldn’t meet Italian hopes and expectations. Under the auspices of the BRI, Italy had signed numerous institutional arrangements with China, covering everything from double taxation to recognition of certain sanitary requirements for pork exports, cultural property, heritage sites, and minor commercial agreements. However these arrangements failed to fundamentally change the trajectory of Italy-China economic ties. 

Since Italy joined the BRI, its exports to China have slightly increased from 14.5 billion euros to 18.5 billion euros, while Chinese exports to Italy have grown thin, from 33.5 billion euros to 50.9 billion euros. Chinese investment in non-BRI countries in Europe has far outstripped its investments in Italy, with Chinese FDI in Italy dropping from $650 million in 2019 to just $33 million in 2021.

As it became clear that the BRI would not be an economic panacea, the Italian government began to reassess whether it should continue its membership. Since Meloni became prime minister, she has indicated that joining the BRI was a ‘big mistake’ that she intended to correct by withdrawing from the initiative. Meloni cited benefits that didn't accumulate to Italy after joining the BRI, noting that ‘Italy is the only G7 member that signed up to the accession memorandum to the Silk Road, but it is not the European or Western country with the strongest economic relations and trade flows with China.’ Most recently, Italian Defense Minister Guido Crosetto called Italy’s decision to join the BRI an ‘improvised and atrocious act.’

More fundamentally, Italian withdrawal from the BRI would reflect the growing transatlantic convergence on the challenge China poses. European countries increasingly view China as a rival rather than as a partner or competitor, while President of the European Commission Ursula von der Leyen recently argued that ‘the Chinese Communist Party's clear goal is a systemic change of the international order with China at its centre,’ pointing to the BRI as evidence. Beijing’s support for Russia in its war against Ukraine has led many European governments, including Italy’s, to shed their illusions about China. Central and Eastern European countries, which had traditionally sought closer ties to China through the ‘17+1’ cooperation mechanism, have also made this shift.

Reflecting this change in strategy toward China, as a candidate, Meloni stated that ‘there is no political will on my part to favour Chinese expansion into Italy or Europe.’ Since taking office, she has been a staunch supporter of Ukraine, while during their recent meeting Meloni and US President Joe Biden committed to ‘strengthen bilateral and multilateral consultations on the opportunities and challenges posed by the People’s Republic of China’ and emphasised ‘the vital importance of maintaining peace and stability across the Taiwan Strait.’

Italy’s withdrawal would deal another blow to the BRI, which has already been scaled back as recipient countries grapple with debt distress.

Chinese banks are seeking to reduce their exposure to risky loans, as China grapples with mounting domestic economic challenges. European countries are increasingly focused on ‘de-risking’ their economies and will be reluctant to increase their economic dependence on China, making it unlikely that any major economy will soon join the BRI.

Italy’s reversal on the BRI should therefore be seen as driven less by economic considerations and more by the new geopolitical reality facing Europe.