Debt-laden Italy eyes China’s belt and road, risking more than just the wrath of Donald Trump and the EU
- It’s clear why Italy, in need of an economic jump-start, would warm to China, but just as clear why engaging China bilaterally is not a good idea
Is China’s “Belt and Road Initiative”, as Italian Finance Minister Giovanni Tria says, “a train that Italy cannot afford to miss”? Prime Minister Giuseppe Conte also thinks Italy should jump on board, saying the multibillion-dollar Chinese infrastructure plan is “an opportunity for our country”.
True, deeper commercial engagement with China is a no-brainer for Italy, where GDP growth has been low or stagnant since the late 1990s, and is expected to decelerate from 1 per cent in 2018 to 0.2 per cent this year. China, on the other hand, boasts the world’s second-largest economy after the US. It is the biggest exporter, an increasingly significant overseas investor and is gradually rebalancing its growth model towards domestic demand.
Moreover, a partnership with China could attract the additional capital inflows that Italy sorely needs, given constrained lending by its banks. Whereas Italy has received about €14 billion in Chinese investment since 2000, Chinese firms invested €10.5 billion in 55 belt and road countries in the first 10 months of 2018 alone, and have signed contracts for belt and road projects worth more than US$80 billion.
For starters, Italy’s interests may not be aligned with those of China. The Belt and Road Initiative is a development strategy to provide overseas markets for Chinese firms, channel resources through international financial centres, and support the international use of the renminbi. It remains to be seen how these objectives can be squared with Italy’s.
Italy thus may not be in a position to ask Chinese partners to comply with EU rules and standards. The EU, for example, is concerned that the state ownership of many Chinese enterprises distorts markets and competition.
Finally, cyber espionage and other mischief by Chinese actors could undermine the credibility of Italian companies in industries such as information and communications technology, infrastructure and defence.
Unfortunately, the Euroscepticism of many leading Italian government ministers has blinded them to these risks – and to the fact that Italy needs all the friends it can get in Brussels.
The entire episode may of course turn out to be a storm in a teacup, ending in a last-minute fudge that leaves China annoyed and the EU displeased. But regardless of the outcome, this is not merely a spat caused by an Italian government with no sustainable long-term plan. Rather, it is the latest sign of the tense global rivalry between the US and China.
But American engagement then was constructive compared with today’s open US-China confrontation under Trump. “With us against China or with China against us” is Trump’s implicit message to Italy and the rest of the world. This does not bode well for a peaceful rebalancing of the global economic order. Italy would be wise to tread carefully.
Paola Subacchi is professor of international economics at Queen Mary University of London and founding director of Essential Economics. She is the author, most recently, of The People’s Money: How China Is Building a Global Currency. Copyright: Project Syndicate