Italy’s Belt and Road conundrum

Italy is considering leaving China’s Belt and Road (BRI) initiative, which Washington and Brussels criticized Rome for joining in 2019. Italian Prime Minister Giorgia Meloni made clear she disapproved of the deal in comments before she won power last year. Since taking office in October 2022, she has presented herself as a pro-NATO, Atlanticist leader, while taking care not to offend China. But the war in Ukraine and China’s close ties with Russia – they committed to a “no limits” partnership in 2022 – have served only to steel her resolve to steer Italy away from Beijing. In May, discussions took place with allies from the Group of Seven (G7) economic powers about the possibility of Italy withdrawing from the initiative.

No decision on the BRI has been taken yet. Under the agreement, either party can end the deal after five years, otherwise the partnership is extended for another five-year term. Italy has until the end of the 2023 to inform China on whether it wants to end the deal. Italy’s conundrum is whether to abandon the BRI and move closer to Washington or allow the agreement to renew automatically to avoid the risk of antagonizing China. It is worth noting that the EU is divided on how closely to align with the US hard line on China.

The BRI conundrum is foremost a political issue, though Italy’s consideration to withdraw from the initiative also has a strong economic dimension: Meloni’s government needs to prove itself as a reliable ally in order for Italian companies to win a slice of the bumper US economic recovery plan. Withdrawing from the BRI could help Italy win such a ‘responsibility premium’ in Washington, and also in Brussels, which it needs to keep onside. From a trade perspective, Italy is not as dependent on the Chinese export market as other major EU economies such as Germany for example.

Withdrawing from the BRI could bring Italy closer to its Western allies, and the US in particular. The disadvantage would be the risk of damage to Italian companies from distancing Rome definitively from China. There are precedents: Western brands that shunned Xinjiang cotton over human rights concerns suffered a consumer backlash in recent years. However, with the global geopolitical situation in flux, that does not mean Italian businesses would necessarily suffer a similar reaction now.

For China, an Italian decision not to renew its membership of the BRI would represent a major setback for the initiative, which has had mixed results with other signatories too. However, this should not come as a surprise to Beijing, given the decoupling of US-China relations. We would not expect a strongly negative Chinese reaction should Italy withdraw. China needs to maintain a relatively stable relationship with Europe given the cooling in its ties with the US. Retaliating against Italy would not help with that.