Italy is highly unlikely to renew its Belt and Road Initiative (BRI) deal with China, which expires in March 2024.^[1] The idea of Italy’s possible withdrawal from the initiative has been floating around since Meloni’s coalition won the national election in September 2022. Prior to the election, she had said it had been a “big mistake” for Italy to sign on to the initiative on March 23, 2019. She had long been a critic of the initiative, saying in 2021 that Italy’s foreign policy needed to be “Europeanist and Atlanticist”. The MOU was signed during the administration of then-prime minister Giuseppe Conte and covered a broad range of areas, from infrastructure to space and energy.^[2]

When Rome committed to participating in Beijing's infrastructure programme in 2019, there were high expectations regarding the country’s economic growth. Due to the absence of results and the escalation of tensions inside the European Union, it is possible that all of this involvement may soon come to a stop.

The pact expires in the next year and will be automatically renewed unless either side informs the other that they are pulling out, giving at least three months' written warning. Meloni has not yet visited China or the US, and she may want to meet with US President Joe Biden before travelling to Beijing. However, some experts have warned that snubbing China's BRI could be disastrous for Italy's economy and trigger a Chinese boycott.^[3]

Italy in Belt and Road Initiative (BRI)

The BRI, which was launched in 2013 by Chinese President Xi Jinping, is comprised of the Silk Road Economic Belt and the 21st Century Maritime Silk Road. It is part of Beijing’s global strategy to develop and create trade and infrastructural networks connecting Asia with Central and Eastern Europe and Africa along and beyond the ancient Silk Road routes.^[4] The United States and its main allies view the project with scepticism because they view it as a debt trap, a predatory mechanism with lack of transparency and a challenge to Western interests.^[5]

It wasn't until 2019 that Italy became the first member of the G7 to get on board with the programme. In addition to this, it did so despite the fact that tensions were rising between China and the United States and that the European Union was becoming concerned about its economic links with the Chinese government.

For China, Italy’s decision was a diplomatic win in its efforts to use the initiative to expand its global influence, particularly to counter the United States. Although, critics warned Italy saying the deal would enable Beijing to gain control of sensitive technologies and vital infrastructure. For Italy, it was seen as a chance to revitalise its economy.

The lack of economic development is the argument for not renewing the deal. Rome wants that China should remain a partner but Italy could not get into a situation where it was over-reliant on Beijing in any key sector, as had happened with Russia and its energy supplies. But Rome needs time to discuss the issue with Beijing. The deal was signed in 2019 by the then Prime Minister Giuseppe Conte, making Italy the first and so far, only G7 nation to join the Chinese programme.^[6]

“Next year, China will consider hosting the 3rd Belt and Road Forum (BRF) for International Cooperation, injecting new impetus into the development and prosperity of the Asia-Pacific and the world,” Chinese President Xi Jinping hinted during his visit to Bangkok for the Asia-Pacific Economic Cooperation summit last year.^[7]

The first Belt and Road Forum (BRF) was hosted in Beijing in May 2017, attracting leaders and delegations from over 200 countries and organisations. The President of China had stated that the conference would 'inject new momentum' into the growth of the Asia-Pacific region. The 2nd BRF for International Cooperation, held in 2019, drew leaders and representatives from more than 200 countries and international organisations. But unfortunately, due to the impact of Covid-19, the third BRF had to be postponed.

Chinese Investments in EU

The current Prime Minister Giorgia Meloni has expressed her disapproval of the deal and her preference for a pro-NATO, pro-Atlantic stance¹². She has also not seen much economic benefit from the deal, as Italy's exports to China have increased only slightly, while Chinese imports from Italy have surged. Then-Italian Prime Minister Giuseppe Conte hoped the deal would give a lift to Italy’s underperforming economy, but over the past four years it has seen little benefit, with exports to China totalling 16.4 billion Euros (US$18.1 billion) last year, compared with 13 billion Euros in 2019. By contrast, Chinese imports from Italy increased to 57.5 billion Euros from 31.7 billion Euros over the same period, Italian government data showed. Italy gained no economic return whatsoever while other EU countries that refused to sign the MOU gained more economic benefits. Italy's main euro zone trading partners France and Germany have exported more to China without being part of the BRI.^[8]

Chinese investment has been waning in Europe in general over the past few years, falling to €7.9 billion (US$8.4 billion) in 2020, the lowest since 2013. Growing concerns over Chinese investments in strategic assets in Europe prompted the EU to tighten its foreign investment screening rules in 2020. Concerns about Chinese investment also came to the fore at Trieste, Italy’s busiest port. Under the belt and road MOU, state-owned China Communications Construction Company, a company blacklisted by the United States in 2020 for its alleged ties with the Chinese military, would be allowed to help develop infrastructure at the port. Trieste is a key gateway to a land-corridor linking the Adriatic to the Baltic Sea in the north of Europe and Western countries were concerned that the agreement would allow China to further expand its influence in Europe, as it did by acquiring the Piraeus Port in Greece in 2016.^[9]

G7 Reactions on Italy’s BRI Deal

Other G7 countries reacted negatively to Italy's decision to join the BRI in 2019, as they saw it as a strategic mistake that would undermine their collective stance toward China. They also feared that Italy would become more dependent on China and more vulnerable to its influence. Some of them, such as France and Germany, tried to dissuade Italy from signing the deal, while others, such as the US and the UK, expressed their disappointment and concern.^[10]

However, in the past two years, some of the G7 countries have also shown some interest in engaging with China on certain aspects of the BRI, such as green development and third-country cooperation.^[11] They have also tried to offer an alternative to China's BRI by launching their own global infrastructure plan at the G7 summit of 2021. The plan, called ‘Build Back Better World (B3W)’, aims to provide a transparent and sustainable way of financing infrastructure projects in developing countries.^[12]

Implications on Indian Interests

The decision made by Italy to pull out of China's Belt and Road Initiative (BRI) may have a lot of ramifications for India. It has the potential that India may gain from the decision that Italy has made because this may result in more cooperation on the development of infrastructure and may open up new opportunities for Indian investment in Europe.

It would strengthen India's stance in opposing the BRI. India was suspicious about the ‘different’ Chinese agenda. Right from the start, the prevalent point of view held by the India regarding the essence of the BRI was that it was less about fostering economic growth and more about achieving bigger political and strategic aims. India’s objection to China Pakistan Economic Corridor which forms part of its BRI and passes through Pakistan Occupied Jammu & Kashmir is well known as it violates India’s sovereignty. India has not attended any of the BRF meetings

In its statement, the Indian Ministry of External Affairs issued in May 2017, before the first BRF, had underlined concerns with the BRI relating to issues of transparency, environmental protection, economic feasibility, and the transfer of technology.^[13] The resistance shown by New Delhi to participate in the BRI has developed into a significant source of tension in the bilateral relationship between the two nations.

According to Vikram Misri, the then India's Ambassador to China, the bilateral commercial ties have seen "exponential growth" despite India's decision not to participate in China's BRI due to sovereignty concerns relating to the CPEC. The reasons for India's decision were related to the CPEC. ^[14]

In addition, expanding India's commerce with Italy is essential for strengthening the relationship between both countries to new heights. As the EU's fourth largest trading partner with India, Italy ranks just below Germany, Belgium, and the Netherlands. Since the economies of both countries began to recover after the COVID-19 pandemic, bilateral trade has increased rapidly over the past two years. With a +44.41 percent rise from the previous year, bilateral trade in 2021 reached €10.49 billion. In 2022, international trade hit a record high of €14.88 billion.^[15]

India and Italy's trading partnership is mutually beneficial. Italy benefits from India's enormous and expanding market for its exports, while India benefits from Italy's access to cutting-edge technology and capital. Renewable energy, space exploration, and defence are just some of the new areas of collaboration that the two countries are aiming to establish. On April 12-14, 2023, CII's Minister of Commerce and Industry Shri Piyush Goyal travelled to Italy with a high-level corporate delegation. Agriculture, renewable energy, automotive, space, defence, information technology, and IT-enabled services are just some of the areas where the two countries have agreed to work together more closely. From April 2000 to December 2022, Italy have invested $3.25 billion in India, making it the seventeenth largest foreign investor in the country. There are currently about 600 Italian enterprises operating in India. It is believed that India has invested about $400 million in Italy.

The Indian government wants to deepen the country's trading ties with Italy. A Comprehensive Economic and Trade Agreement (CETA) was signed between the two countries in 2021, and it's expected to increase bilateral trade to new levels.

Italy is a prominent cultural centre, and India has a long history of cultural links with Italy. These two countries have worked together to strengthen their cultural ties. India will have the opportunity to support these connections due to Italy's decision to withdraw from the BRI.

Italy is a prominent actor in the global fight to battle climate change, and further collaboration is essential to the country. India is likewise dedicated to bringing down its overall emission levels. Therefore, if Italy successfully lures additional investments in renewable energy sources, this may pave the way for increased climate change collaboration between India and Italy.

Conclusion

Italy's exit from the BRI deal could encourage other countries to reconsider their participation in the BRI or to demand more transparency and accountability from China on the terms and impacts of the projects. It could strengthen India's position in opposing the BRI, especially the CPEC that passes through disputed Pakistan Occupied in Kashmir.

Italy is a significant partner for India in the areas of trade, investment, military, science and technology, and culture. This development might strengthen India's economic and strategic connections with Italy, which could be beneficial for both countries. This may also present a challenge for India as it seeks to strike a balance between its interests and ideals and its pragmatic engagement with China on a variety of bilateral and global issues. The positivity of Indian diplomatic approach will enable India to amicably handle all aspects.

References

^[1]Chiara Albanese and Alessandro Speciale, “ Italy Intends to Exit China Belt and Road Pact as Ties Sour”, Bloomberg, May 9, 2023, https://www.bloomberg.com/news/articles/2023-05-09/italy-intends-to-exit-china-belt-and-road-pact-as-relations-sour#xj4y7vzkg. Accessed on May 12, 2023.
^[2]Kawala Xie, “Where did China’s belt and road plans go wrong in Italy?”, SCMP, May 7, 2023, https://www.scmp.com/news/china/diplomacy/article/3219690/where-did-chinas-belt-and-road-plans-go-wrong-italy. Accessed on May 7, 2023.
^[3]Tom Kington, “Snubbing China’s Belt and Road Initiative could be disastrous, expert tells Mario Draghi”, Sunday Times, June 16 2021, https://www.thetimes.co.uk/article/snubbing-chinas-belt-and-road-initiative-could-be-disastrous-italian-expert-tells-mario-draghi-0nwh6djfq. Accessed on May 7, 2023.
^[4] “2nd BRF ends with 283 results, consensus on high-quality cooperation”, CGTN, April 28, 2019,
https://news.cgtn.com/news/3d3d514e35417a4d34457a6333566d54/index.html. Accessed on May 9, 2023.
^[5] “What is China’s Belt and Road Initiative (BRI)?”, Chatham House, September 13, 2021, https://www. chathamhouse.org/2021/09/what-chinas-belt-and-road-initiative-bri. Accessed on May 9, 2023.
^[6]Reuters, “Italy Unlikely to Renew China Deal, but Needs Time, Official Says”, The US News, May 4, 2023, https://www.usnews.com/news/world/articles/2023-05-04/italy-unlikely-to-renew-china-deal-but-needs-time-official-says. Accessed on May 7, 2023.
^[7]Cyril Ip, “Xi Jinping says China will ‘consider’ hosting Belt and Road Forum in 2023”, SCMP, November 18, 2022, https://www.scmp.com/news/china/diplomacy/article/3200182/xi-jinping-says-china-will-consider-hosting-belt-and-road-forum-2023?module=inline&pgtype=article. Accessed on May 7, 2023.
^[8]Reuters, “Italy likely to leave China’s BRI: source”, Taipei Times, May 05, 2023, https://www.taipeitimes. com/ News/world/archives/2023/05/05/2003799215. Accessed on May 7, 2023.
^[9]Ibid SCMP.
^[10]Francesca Ghiretti, “The Belt and Road in Italy: 2 Years Later”, The Diplomat, March 23, 2021, https://thediplomat.com/2021/03/the-belt-and-road-in-italy-2-years-later/. Accessed on May 7, 2023.
^[11] Ibid.
^[12] “G7 rivals China with grand infrastructure plan”, Reuters, https://www.reuters.com/world/g7-counter-chinas-belt-road-with-infrastructure-project-senior-us-official-2021-06-12/. Accessed on May 7, 2023.
^[13] “Official Spokesperson's response to a query on participation of India in OBOR/BRI Forum”,
May 13, 2017, https://www.mea.gov.in/media-briefings.htm?dtl/28463/official+spokespersons+ response+to+a+query+on+participation+of+india+in+oborbri+forum. Accessed on May 7, 2023.
^[14]PTI, "Hope China Understands Our Viewpoint: India On Boycotting Belt And Road”, NDTV, May 3, 2019, https://www.ndtv.com/india-news/bri-belt-and-road-initiative-india-on-boycotting-bri-belt-and-road-initiative-hope-china-understands-2032648. Accessed on May 10, 2023.
^[15] “Trade and Economic Relations”, Embassy of India Rome Italy, 2023, https://www.indianembassyrome .gov.in/page/trade-and-economic-relations/. Accessed on May 10, 2023.

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