Italy and China’s One Belt One Road Initiative

1st May 2019 Off By binary
Italy and China’s One Belt One Road Initiative
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By Sara Hsu

China has become a leader in globalization, most visibly through its One Belt One Road initiative, which spans several continents and aims to build up infrastructure and trade between China and the rest of the world. While the program has, for the most part, remained controversial in the West due to a fear of Chinese imperialism, in March 2019, Italy broke with the G7 major economies and signed up for the program. Some analysts have expressed concerns that this move will allow China a back door into Europe’s heartland, while others see it as a shrewd move on the part of the Italians, allowing them to obtain much-needed financing for a number of endeavors. So, which is it, and is this a win-lose or a win-win situation?

Italian-Chinese agreement

A few details first. Italian leader Deputy Prime Minister Luigi Di Maio signed a memorandum of understanding of cooperation between the two nations. The MOU states, “the Parties will work together within the Belt and Road Initiative (BRI) to translate mutual complementary strengths into advantages for practical cooperation and sustainable growth, supporting synergies between the Belt and Road Initiative and priorities identified in the Investment Plan for Europe and the Trans-European Networks, bearing in mind discussions in the EU China Connectivity Platform. This will also enable the Parties to enhance their political relations, economic ties, and people-to-people exchanges.” Economic benefits have been a focus of the BRI. Di Maio views the agreement as a means to correct the trade imbalance between two countries by shipping more Italian-made goods to China.

Under the collaboration, the nations agreed upon a $2.8 billion package that included 29 deals. The deals targeted a variety of sectors, including energy, finance, agriculture, and infrastructure. Luxembourg soon after followed suit, signing an accord that endorsed the Belt and Road Initiative. The agreements boost China’s reputation as a leader of economic globalization, as Western Europe joins countries from Central and Eastern Europe, Asia, and Africa in participating in infrastructure projects with the Middle Kingdom.

Winners and losers

In this deal, if there is any winner, it is China. Italian involvement in Xi Jinping’s flagship program gives the Chinese leader “face” and signals to the rest of the G7 that Chinese influence is potentially welcome everywhere. China has been racking up signatories to the program in almost every continent. The appeal is cheap loans, skilled Chinese labor, and the potential for long term returns on investment. China helps to build up infrastructure, such as bridges, roads, and ports, that can help countries improve their economic circumstances.

Some in Italy also view the deal as beneficial. With high levels of debt and recent experience with recession, Italy has struggled to improve its economic performance amid a backdrop of slow Eurozone growth. Politics has played a role in maintaining debt costs, as Italy and the European Union locked horns over increasing Italy’s budget deficit and implementing a fiscal stimulus plan. The dispute ended up driving up Italy’s borrowing costs before an agreement was reached at the end of 2018.

However, major Western powers disagree that joining the One Belt One Road project will help Italy. Rather, countries like the US see the move as a means for China to penetrate national security barriers and engage in debt trap diplomacy. The latter charge stems from China’s tendency to finance BRI projects through loans. The European Commission remains wary of the Asian nation. In a Strategic Outlook publication, the European Commission called China “an economic competitor in pursuit of technological leadership and a systemic rival promoting alternative models of governance.”  China has been viewed poorly due to it state subsidies for traded goods and government involvement in the technology sector, which could provide a gateway to Chinese spying.

Complicating matters, not all top Italian officials agree that the deal is good for Italy. Even Di Maio’s own coalition partner, the far right League, has sought to uphold strong relations with the US, which has been involved in a trade war with China under the Trump administration. Italian opposition parties have opposed any deal between China and Italy on the grounds that it could harm Italian industry.

Europe against Chinese practices?

French President Emmanuel Macron wants to unite Europe against unfair Chinese trade and investment practices. Macron stated on March 25 during a visit from Chinese President Xi Jinping that fair competition between European and Chinese firms should be a goal, and that BRI projects must meet international norms. Despite this talk, France and China signed 15 business deals in the amount of 40 billion euros ($45 billion) to further the economic interests of both sides.

Measures of success

The conclusion is not simple, as there may be different measures of success for such a collaboration. One measure is simply Italy’s growth that arises from the program. Will the deals made be fruitful, and how significant will the gains be? Another measure is whether there really will be security costs associated with the deals. Will China truly have the ability to access Western Europe’s private economic and social networks due to the cooperation, or is this just Sinophobia? Finally, there is a question of who will gain or lose due to the partnership-for example if there are jobs or contracts lost or gained as a result.

In this globalized world, relationships are complex. China is working to expand outward by recognizing that other nations have economic needs that they cannot easily fulfill themselves. Whether the China’s partnerships with other nations are fair or will make economic and political sense in the long run has yet to be seen, but they remain contentious among Western critics.

Sara Hsu is an assistant professor of economics at the State University of New York at New Paltz. Her research interests include the Chinese economy, financial flows, and the international economy.

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