Viktor Zamiatin, Razumkov Center Political and Legal Programmes Director

Vasyl Yurchyshyn, Razumkov Center Economic Programmes Director

At the end of 2023, an event that can trigger significant changes in geopolitical and geoeconomic processes remained out of focus: Italy officially announced its withdrawal from China's Belt and Road Initiative (BRI), terminating the Memorandum of Understanding (MoU) between Italy and China that had provided for the country's participation in BRI. In the absence of the declaration of withdrawal by the end of December, the validity of the Memorandum would have been automatically extended for another five years in March 2024. Probably, the parties tried and made efforts to make the "divorce" quiet, without excessive confrontation and public mutual reproaches, which explains its rather calm (not sensational) perception in society. 

The "divorce" actually puts an end to BRI (or at least to its expansion) in Europe and mark the beginning of the process of reshaping the relations of the leading European Union member states with China. If we mention the withdrawal of Lithuania from the Economic Forum "16+1" (also initiated by China) in 2022, we can seriously talk about a change in the attitude of the EU countries to China's economic expansion.

The significance of the event should not be underestimated. The decision of Giorgia Meloni's government to quit this initiative was taken on the eve of Italy's one-year presidency of the Group of Seven (G7), so, it points to at least two factors: a change in the G7's policy towards China, and the ambitions of Italy and its Prime Minister Meloni, who makes it clear that she wants a much more important role for Rome on the global chessboard. This applies, in particular, to Italy's unconditional support for Ukraine's struggle against Russian aggression, which distinguishes Meloni both from her Italian colleagues and from the European right-wing, like Orbán (with whom she maintains close relations).

History of perception. For information: the Memorandum of Understanding between Italy and China was signed in March 2019 and was clearly politicised. On the one hand, Italy and its leadership hoped to raise Chinese investments, expand export opportunities and gain wider access to China’s rapidly growing domestic market. From China’s viewpoint, it confirmed the transcontinental significance of BRI, as well as the general improvement of China’s global image as an infrastructural and integrational leader of modern times.

However, it quickly turned out that the USA and the EU took this political step taken by Italy without coordination with partner countries quite differently. If China's intentions were quite clear — firstly, to gain leverage on the politics of the European Union through one of the largest European economies, and secondly, to limit the global political and economic influence of the USA on the EU, for Italy, this step received a very negative perception.

Of course, the historical context played an important role here. One should keep in mind that in the second half of the 2010s, Italy faced economic troubles — fiscal imbalances, drop in investments, declining productivity, uncontrolled waves of migration from Asia and Africa. The then leadership saw no other way than to secure (even by dubious methods) more funding from the EU. In the conditions of confrontation with the EU and its key donor states, the Italian government wanted to demonstrate alternatives (freedom of action in relations with China) to receive funds, if Brussels "does not show understanding" for Italy.

However, the time was chosen "inappropriately". First, in that period, China carried out trade and investment expansion in the EU, which was not to the liking of many, causing concern about its excessive activism. Secondly, the trade conflict between the US and China was on the rise, and contradictions between the US and the European Union were growing. In such conditions, the EU leadership felt it appropriate to promote constructive interaction with the US, while being cautious towards China. Hence, Italy's attempt to "play the Chinese card" was perceived extremely negatively in most EU countries and caused serious damage to the domestic and international perception of the Memorandum in general. Therefore, this document could not be but short-living.

And this proved true. The next Prime Minister Meloni and her party consistently opposed the Memorandum from the very beginning, among other things, due to with the perceived need to strengthen the party's position as a reliable partner of the United States, including support for Ukraine (even before the election victory). Immediately after the victory, Meloni called the previous government's decision regarding the Memorandum a "serious mistake" and announced that she intended to withdraw from it.

The subsequent period brought, on the one hand, strengthening of transatlantic relations, on the other — a more wary and cautious attitude towards China's intentions and declarations, largely due to its pro-Russian "neutrality" in the Russian-Ukrainian war. 

By the way, we may see kind of a repetition of an attempt of a specific country to obtain additional benefits from Brussels. The Prime Minister of Hungary is trying to play his "combination" to get more funding from the EU, hindering Ukraine's rapprochement with the EU and financial aid for it to counter the Russian invader, "not noticing" the change of mood in the EU, compared to the period of the beginning of the aggression, when the EU itself was caught by surprise with the Russian attack. So, we can expect that the current political actors will produce similar efficiency of confrontational actions.

Economic shifts. Political attitudes also changed in the result of the lack of tangible economic benefits for Italy from its membership in BRI. Perhaps the performance would have been somewhat different if it were not for the coronavirus attack, which undermined many ideas and projects. Also, mutual understanding between the European Union and China and resultant support for economic activity might be better, if democratic countries saw China's willingness to help Ukraine.

In any case, trade relations between the two countries fell short of expectations in Italy. Although exports of Italian goods to China slightly increased, it makes only a small share of the total Italian exports, their main destinations being the large European economies and the USA. At the same time, during the Memorandum validity period, Italy's imports from China grew at a much higher rate than Italy's exports to China, which meant a significant increase in the trade deficit for Italy (table "Main trade partners of Italy, 2022")

Along with this, noticeable shifts took place in Chinese investment flows. In the mid-2010s, investors made emphasis on mergers and acquisitions — purchases of successful European companies in order to gain access to proven technologies and intellectual property rights, established supply and sales markets, the existing customer base, etc. (chart "China’s direct investments in the EU countries").

Main trade partners of Italy, 2022

China's direct investments in the EU countries, € billion

However, from year to year, Chinese investments faced new obstacles, including because of European security issues, and with that, admission of foreigners to specific assets. Thus, as far back as at the end of the 2010s, the Italian government did not allow investors from "third countries" to invest in the country's strategic sectors. Although such restrictions formally applied to all "third" countries (outside of the EU), Chinese investments were under particular scrutiny, which also eroded the economic basis for the Memorandum.

It should be noted that the year of 2022 was generally unsuccessful for the Sino-Italian economic ties. Say, China's investments in the EU fell to €7.9 billion, which is 22% less than in the previous year, being the lowest figure for almost a decade (investments in China fell accordingly). At the same time, new investments (thanks to the construction of plants for the production of batteries for electric cars) outstripped the volume of mergers and acquisitions for the first time since 2008. Along with this, 10 out of 16 concluded investment deals in the technology and infrastructure sectors were not completed, mainly due to objections raised by the national authorities of Denmark, Germany, Italy and Great Britain.

The downward trend in Chinese investments in the EU, combined with the emergence of stricter mechanisms for their scrutiny and the lack of institutional support (even in the form of the Memorandum), may significantly undermine the appeal of Sino-Italian relations. At the same time, there are reasons to believe that other European countries (mainly Central and Eastern European, that have signed similar memoranda) will change their strategic priorities regarding Chinese investments.

Implications for European solidarity. Italy's decision to withdraw from BRI has a number of important transatlantic and global implications. First, this decision confirms, on the one hand, the restoration and strengthening of transatlantic relations between the US and the EU, and the unity of the leading European and American countries regarding China's policy. On the other hand, it shows that Italy remains one of the leading NATO members, especially given the growing concern in Europe and around the world about security and political tension emanating from autocratic countries. It is important that such a signal came from Italy, which for some time was a supporter of the "strategic autonomy for Europe."

Second, Italy's withdrawal from BRI is a symbolic signal to China and other countries showing that the time when it was possible to use economic expansion to win strategic niches in Western democracies is passing away, and the US policy of economic security, including non-admission of "third countries" to strategic sectors and industries, will be increasingly supported by the EU countries. This is an extremely important aspect, since BRI is a part of a broader Chinese strategic project — the Global Development Initiative (GDI), which aims not only at economic expansion but also at promoting the Chinese approach to public administration throughout the world.

Thirdly, Italy's decision in the period of intense discussions about the ways of strategic development proves that Euroscepticism has significantly weakened its position and popularity in the EU countries. Today, the position of marginally oriented politicians, the leaders who take a conformist position on the issues of war and peace, freedom and democracy, human values and partner assistance causes irritation, if not contempt.

At the same time, it is important to note several points directly or indirectly connected with the decision of the Italian government to modify its strategy in relations with China.

First, this decision was made after a year of the right-wing government led by the first woman in the country's history. Giorgio Meloni is the leader of the "Brothers of Italy" party, which is considered to be right-wing. During the election campaign, Meloni made emphasis on the support for traditional values, the traditional family and Italy’s role of a major country.

The Italian right, primarily the late Berlusconi, as well as members of Meloni's current cabinet, such as Deputy Prime Minister Salvini or Minister of Foreign Affairs of the current government Tajani, were previously distinguished for their demonstrative love for Putin and Russia, and Meloni herself was against the introduction of strict sanctions against Russia after the beginning of the aggression in 2014. However, the large-scale Russian war against Ukraine changed not only the rhetoric but also the practical approaches of the Italian right.

It is worth noting that for Meloni, support for Ukraine is one of the cornerstones of her foreign policy, and this support includes not only numerous statements but also practical actions: in particular, Ukraine has already received modern air defence systems SAMP/T-MAMBA, Spada, Skyguard, the eighth Italian aid package is now being delivered. Italy declared its willingness to participate in the reconstruction of Odessa.

Such a position is obviously aimed at the general enhancement of Italy's role in European and world affairs. At the same time, it is worth noting that if Meloni's political position in the country is strong enough today, the same cannot be said about the economy. Giving up BRI wouldn't be possible without Meloni's confidence in her support, and at the same time, it's something opponents can use against her at the first opportunity.

Providing arms to Ukraine, which Meloni often insists on, is not very popular in Italian society, where the idea of friendship with Moscow and the benefits of trade with it has been cultivated for decades.

Meloni has proven to be an exception to today's European right-wing politicians, and perhaps she can be the first messenger of change in their mainstream trend, now dominated by figures like Le Pen and Orbán.

For the future of Europe, as well as for the European aspirations of Ukraine, this would be an indisputable gain. However, as always, the situation requires very cautious approaches and assessment of opportunities.

We stress again that the European democratic consolidation was most clearly manifested through the attitude to the events in Ukraine. In turn, the Ukrainian experience of resisting the aggressor serves a strong confirmation of the rejection of aggression of large autocratic countries by a truly democratic community.

https://razumkov.org.ua/statti/vykhid-italii-z-initsiatyvy-odyn-poias-odyn-shliakh