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Italy, China and the new Silk Road

Image Credit: Official Photographer for Giuseppe Conte (Creative Commons: Facebook)

Chinese President Xi Jinping and Italian Prime Minister Giuseppe Conte recently signed a Memorandum of Understanding (MoU) to signify Italy’s endorsement of China’s controversial Belt and Road Initiative (BRI). The action was mostly symbolic, showing bilateral support for reforging a trade link from Eastern China to the Adriatic Port of Trieste, much like the ancient Silk Road that once connected erstwhile civilisations across the Eurasian continent.

The BRI is Jinping’s $US1trillion+ programme of investment, trade, and connectivity that China seeks to establish in more than eighty countries and involving over 4.4 billion people. Whilst not the first EU member state to endorse the BRI, Italy is the first G7 country and overall world’s eighth largest economy.

This is seen as a crucial endorsement for Jinping.

China’s interest in Italy is keeping with its long-term strategy for Europe; it is gradually gaining access to the continent, country by country, via the economically weaker Eastern and Southern states with the aim of eventually penetrating the EU’s core markets. A major aspect of this is China’s ‘Five Ports’ initiative through buy-ups of strategic ports of Venice, Trieste, and Ravenna, plus Capodistria (Slovenia) and Fiume (Croatia).

Why would Italy take this bilateral step?

Italy’s economy has yet to return to its pre-2008 crisis levels and has had an average GDP growth rate barely one-sixth of the EU average. This is stalling wage growth and consumer purchasing power of the average Italian. Italy’s crippling sovereign debt is 130% of GDP meaning Government commitments to boost welfare and repairing the country’s crumbling infrastructure are being left unfulfilled. This became tragically apparent after the 2018 Genova Bridge Collapse, which publicised the conditions of Italian infrastructure to the world.

The MoU document between the China and Italy is broad and vague, covering areas including trade, investment, transportation, and infrastructure, with the aim of giving Italian firms access to BRI projects and to increase Chinese investment in Italy. High-ranking Italian ministers like Giuseppe Conte and Luigi di Maio are choosing to view the BRI as an opportunity for an alternative foreign investment stream. There are hopes Beijing-owned China Communications Construction Company will invest much-needed funds into the strategically placed yet underfunded port of Trieste, due to its key position in relation to EU shipping and rail connections.

Other politicians in the Italian coalition government point to evidence of the Chinese firm’s dodgy dealings for which it has been penalised by a series of Western regulatory agencies. Fearing Chinese buy-outs, protectionist politicians have voiced concerns for safeguarding Italian business autonomy and the world famous ‘Made in Italy’ brand. The discourse in Italy is a common theme emerging across Europe, where states are debating the potential economic benefits, and risks, of partnering with China’s BRI.

Italy’s decision to back the BRI without proper EU consultation has ruffled feathers. The closer Sino-Italian partnership comes as the Brussels and Rome’s relationship remains somewhat sour after spats over immigration and rejected budget measures.

Traditional Atlantic-focused relations are also being tested by the deal.

The US National Security Advisor, John Bolton, ever wary of the China and the BRI, has stated that the endorsement ‘lends legitimacy to China’s predatory approach to investment and will bring no benefits to the Italian people’. Prime Minister Conte, who travelled to China’s Belt and Road Summit in April, is encouraged to tread carefully when he negotiates without the collective bargaining power afforded by the EU.

The EU and the BRI

Many in Europe are feeling uneasy at the profound symbolism of greater Chinese control over ancient European ports. The EU’s concerns regarding the BRI are complex and include objections over China’s past predatory lending practices, non-competitive bidding processes, lack of Chinese concern for workers’ rights, theft of intellectual property, and environmental damage. States throughout Eurasia that have been unable to cope with interest repayments have been left having to hand over control to China of critical infrastructure and assets. This includes the Greek port of Piraeus, which is owned by Beijing-backed COSCO after having been bought out during Greece’s austerity and privatisation programme. Similarly in Sri Lanka after the construction of the Hambantota Port, the state was unable to pay back a $US8 billion Chinese loan and in return agreed to give China a 99-year lease on the port.

Observers argue China is using the BRI as a means to reorganise world order by weakening transatlantic alliances and gaining access to a number of states’ critical infrastructure. The BRI, they claim, is China’s attempt to create an alternative trade network, one not founded on rules-based, liberal, transparent, and accountable systems. China’s trade deals are entrenching democratic states in Chinese debt with the aim of creating new export markets, control trade routes, and guarantee access to raw materials.

In response, the EU has redefined China as a ‘strategic competitor’ and voted to implement greater regulatory oversight into how Chinese firms are involved across the Union in areas of critical infrastructure and technologies. Interestingly, Italy abstained from this vote, fuelling EU concerns that China is pressuring BRI-enlisted member states to vote in China’s favour regarding trade policy.

Brussels and Washington are expressing well-founded anxieties for European nations endorsing China’s BRI. The Asian giant’s relentless push to shift trade hegemony back East has already taken advantage of economically vulnerable states.

The ancient Silk Road is being reforged and without a concerted effort from Europe and its allies, it appears that it will be done on Chinese terms.

Dominic Simonelli is the Europe and Eurasia Fellow for Young Australians in International Affairs.

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