Playing with fire

Italy, China, and Europe

Italian Prime Minister Giuseppe Conte attends a meeting with Chinese President Xi Jinping at the Great Hall of the People in Beijing, China, April 27, 2019. Parker Song/Pool via REUTERS
Editor's note:

Italy’s decision to endorse China’s Belt and Road Initiative in 2019 was the result of years of growing Chinese presence in the country, previous difficulties in attracting foreign direct investment, intra-European competition for Chinese money, and Italy’s history of openness to China, argues Giovanna De Maio in a report for the Brookings – Robert Bosch Foundation Transatlantic Initiative (BBTI).

Executive Summary

Brookings – Robert Bosch Foundation Transatlantic Initiative

The most significant event for Italian foreign policy in 2019 was the signing of a Memorandum of Understanding (MoU) with China endorsing the Belt and Road Initiative (BRI), which marked a break in the ranks of G-7, raising important concerns from Washington that Italy would become an entry point for Chinese influence in Europe. In reality, Chinese investment in Italy’s key industries, including energy and telecommunications, has been growing since 2013.

Chinese foreign direct investment in Italy is also significantly lower than in other major European economies such as Germany and France, which have not endorsed the BRI but have secured important trade and investment deals with Beijing. Due to Italy’s difficulties in attracting investment because of high taxation and bureaucracy (among other factors), Italy’s decision to sign the MoU on the BRI is an attempt to gain advantages over its European competitors to attract Chinese investment and address longstanding economic stagnation.

On top of these existing issues, the devastating economic impact of the COVID-19 pandemic (a 9.1% drop in GDP for 2020 is forecast by the International Monetary Fund) risks pushing Italy further into China’s arms. There are indeed mechanisms on both national and European levels to protect against foreign investment in strategic sectors, while different views on China in the Italian political landscape have led to more decisive actions to restrict the development of a 5G wireless network through Chinese technology. But, as Italy’s overall political instability and economic weaknesses prevent the development of a clear strategy vis-à-vis China, temporary economic gains can easily backfire.