Italy and the Belt and Road Initiative

There has been a growing scepticism with regard to the Belt and Road Initiative (BRI) project in many quarters, due to the lack of transparency with regards to terms and conditions as well as the economic implications for countries which are part of the project. A report published in April 2018 by the Center for Global Development (CGD) in Washington flagged 8 countries (including Pakistan, Maldives, Laos, and Djibouti) where the level of debts are unsustainable.

Apart from the red flag raised by a number of researchers, the removal of Pro-China leadership in countries like Malaysia, Maldives, and Sri Lanka has also resulted in problems with the BRI project, and China’s economic dealings (which are clearly skewed in favour of Beijing) with other countries is drawing more attention.

The most vocal critic of China’s economic links has been Malaysian Prime Minister Mahathir Mohamad. During a visit to China in August 2018, Mahathir, alluded to China’s trade relations with poorer countries as ‘a new version of colonialism’. Mahathir later on denied that his statement was targeted at China or the BRI. The fact is that the Malaysian Prime Minister did scrap projects estimated at well over $20 billion (which includes a rail project, East Coast Link, as well as two gas pipelines).

Top officials in the Trump Administration, including US Vice President Mike Pence, have also been critical of the BRI project for a variety of reasons. The major criticism from US policy makers has been the economic ‘unsustainability’ of the project as well as the point that the project is skewed in favour of China.

Italy to join BRI

As the debate carries on with regard to the BRI, nobody can ignore the fact that Italy (the world’s 8th largest economy) is likely to become the only G7 country to join the BRI.

During Chinese President Xi Jinping’s visit to Italy, later this month (March 22-24), a Memorandum of Understanding (MOU) could be signed. Senior officials in the government have been cautious, and have emphasised the fact that the MOU would be ‘non-binding’. Michele Geraci, an Undersecretary in Italy’s economic development ministry, recently commented on the status of the MOU, stating that “it is possible that it will be concluded in time for [Xi’s] visit.”

Geraci, a Sinophile who has spent a fair amount of time in China, is said to be driving the ruling coalition’s policy (The Five Star Movement, M5S, and right-leaning Lega joined hands to form a government in June 2018) towards China.

Italian PM Giueseppe Conte, while addressing a seminar in Genoa, made the point that while joining BRI would open new opportunities and horizons for Italy, Rome was likely to be cautious and would not do anything in haste.

Current state of Italy-China relations

China-Italy bilateral trade reached nearly $50 billion in 2017. China is Italy’s largest trading partner in Asia. It would be pertinent to point out that ties between both countries are not restricted to the economic sphere. There has also been a rise in Chinese tourists visiting Italy (over 1.5 million annually). Even in the sphere of education, linkages between both countries are rising. As of 2017, there were over 6,000 Italian students in China and nearly 20,000 Chinese students in Italy.

The current Italian government has given immense attention to China, and there have been 3 high level visits ever since the ruling coalition took over the reigns last June (senior officials who visited include Italy’s Finance Minister Giovanni Tria, Geraci, and Deputy Prime Minister Luigi Di Maio — who also holds the charge of economic development minister). The Italian PM is also likely to attend the second Belt and Road Forum to be held in Beijing in April 2019.

The clear objective of becoming part of BRI, according to senior officials, is to get access for its goods and to also leverage its geopolitical location within Europe. During his visit to China in September 2018, the Italian Deputy PM had spoken in favour of Italy joining the project. The Deputy PM who had gone to attend the 17th Western China International Fair had made the point that Italy was identifying the possible avenues for participation in the project, and that the G7 country could benefit immensely, if it successfully harnessed its own economic and geographical strengths.

In  2018, the inaugural meeting of Italy’s China Task Force was held in Rome (this is headed by Michele Geraci). The key objectives of this task force are; to give an impetus to bilateral economic cooperation (to give a boost to Chinese investments in Italy, giving a push to Italian exports to China, cooperation in Research and Development), and also to explore how Italian companies could seek financing under the Belt and Road Initiative. Italy has also been seeking to expand cooperation with China in Africa (the argument is that African growth will help in putting a check on immigration to Italy). Interestingly, former PM Paolo Gentiloni had urged the EU and the US to invest more in Africa, and to counter China’s growing influence.

Skepticism with regard to Italy-China economic relations

While the government has unequivocally spoken out in favour of this decision, many argue that Italy will need to develop its own infrastructure – especially the rail system, if it wants to benefit significantly from BRI. Given Italy’s current fiscal situation, too much investment into infrastructure seems highly unlikely. With China having invested in Piraeus (a Greek port), it is important that the Venice Port becomes more competitive. This will require not just economic investments, but strategic thinking.

There are those who also argue that the current Italian government has given too much attention to Beijing at the cost of relations with other countries. The China policy, it is argued, will also have an adverse impact on EU’s common China policy.

Unlike other Western countries, Italy has not given a very strong reaction on the Huawei controversy. The Italian Deputy PM was quick to state that “we are in no way tilting the geopolitical axis,” and the Italian PM also made it clear that while Italy will join the BRI, it will ensure that it benefits both countries, and that EU norms and values are not forgotten.

It is argued that, by reaching out to Euro skeptics in the EU, Beijing is trying to create divisions within the bloc. Countries like Hungary and Greece, which are being increasingly dependent upon China, have taken a different stance from other EU countries on issues such as the South China Sea and Human Rights violations.

The EU has been critical of the BRI

Brussels has even come up with its own version of BRI. In September 2018, the EU’s strategy for connecting Europe and Asia was launched. Senior EU officials, including High Representative/Vice-President Federica Mogherini, made it clear that the EU’s strategy towards Asia is to enhance connect between Europe and Asia, and to ensure it is beneficial for both. The project would also take into account financial and environmental sustainability.

US reaction to Italy joining BRI

Washington also took note of Italy joining BRI. As expected, the US was critical of Italy’s decision to join the BRI. A White House National Security Council spokesperson, Garrett Marquis, in a media interview stated that “we view BRI as a ‘made by China, for China’ initiative.”

As mentioned earlier, senior members of the Trump Administration have flagged the shortcomings of the BRI project, and how the dependence of certain countries in Asia and Africa is rising.

Conclusion

It is important for countries within the EU as well as other countries sceptical of the BRI to adopt a more pragmatic stance towards Italy’s decision. One must also keep in mind the fact that, while speaking about signing an MOU with China, Italy has left room for manouevre. It is also important for countries wary of increasing Chinese influence to themselves stand up for liberal values and greater economic integration. One of the reasons for Beijing’s increasing economic clout is the increasingly inward-looking economic policies being adopted by a number of democracies – not just the US. At the January 2017 World Economic Forum (WEF), Chinese President Xi Jinping had warned against the increasing scepticism with regard to globalisation. Said the Chinese President:

Some people blame economic globalization for the chaos in our world. Economic globalization was once viewed as the treasure cave found by Ali Baba in the Arabian nights, but now it has become the Pandora’s Box.

Very few leaders have spoken up on this issue forcefully enough. Similarly, if the US has flagged problems with the BRI it should be willing to invest in an alternative narrative. So far, even if one were to look at the narrative of a ‘Free and Fair’ Indo-Pacific, Washington has not made significant financial commitment. (In July 2018, the Trump administration did make a commitment of $113 million for areas like energy, digital economy and infrastructure.) While it is believed that the US IDFC (International Development Finance Corporation), created through the BUILD (Better Utilisation of Investment Leading to Development) Act, may be able to give the much required boost to some important connectivity projects, its total budget is only estimated at $60 billion, which pales in comparison to China’s budget.

The only country which has attempted to put up a cohesive alternative to BRI is Japan’s ‘Partnership for Quality Infrastructure’ (PQI). Japan, along with the Asian Development Bank, will be providing over $100 billion ($50 billion from Japan and $50 billion from the ADB) for infrastructure in Asia. Japan’s economic presence in Africa is also steadily rising, though it is assisting Africa in a number of other areas like health and education (through Tokyo International Conference on African Development, or TICAD, which is co-hosted by the government of Japan, the World Bank, United Nations Development Programme, the African Union Commission, and the United Nations).

While it is true that globalization may not be perfect and some scholars went overboard, there is also no denying the point that populist policies which have favoured economic isolationism have achieved significant political successes. But their limitations are beginning to show in the economic sphere. It is for this reason that even leaders like Mahathir, who is critical of Chinese projects, has stated that if he were to chose between China and an ‘unpredictable US’ he would choose the latter. Italy on its part must be cautious and should astutely balance its own interests and not allow Beijing to have a free run. Differences with the EU should not lead to Italy and other countries becoming excessively dependent upon China.

There is no denying the fact that Italy’s acceptance of the BRI has important implications which go well beyond EU.

3 thoughts on “Italy and the Belt and Road Initiative

  1. The point is that most of the Italian politicians don’t understand anything about this problem. They just care about their own business, not about the problems of the country. Poor Italy.

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