Italy’s Risky Realignment

2019-06-13T10:21:22-04:00
June 13, 2019
Research Assistant, Alliance for Securing Democracy
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Every Italian learns about Marco Polo, a young merchant who left his native Venice in 1271, travelled to China, and returned home twenty-four years later with riches and treasure. Today, Italy’s government is betting that moving closer to Beijing will yield a similar bounty for its economy. This is why, earlier this year, Italy formally endorsed Xi Jinping’s Belt and Road Initiative (BRI) — an ostensibly benign push for improved infrastructure that is in fact meant to anchor an increasingly proselytizing authoritarian regime as the center of the global economy. After a three-day trip to Italy by Xi, representatives of both countries signed a memorandum of understanding (MoU) that lays down a framework for closer cooperation between both countries.

By intensifying economic cooperation with the Chinese party-state, Italy is helping the world’s most powerful authoritarian state establish a beachhead in southern Europe, threatening European strategic sectors, and publicly distancing itself from the EU’s efforts to respond to a “systemic rival.”

What Rome’s Endorsement of BRI Means for Beijing

Italy’s participation in BRI has given Xi a “significant political boost” at home. Italy has the Eurozone’s third highest GDP and is the largest economy to have signed up to BRI so far. It is also the first EU founding member, as well as the first G7 member, to formally endorse Beijing’s initiative.

Italy also fits into the Chinese party-state’s strategy of port acquisition in Europe. Beijing already holds stakes in over a dozen European ports. In the Mediterranean, Greece and Portugal have already signed up to BRI. A Chinese state-owned company has run Greece’s main port since 2016 and Portugal has declared itself open to leasing its largest port to a Chinese operator. Now that Rome has endorsed BRI, the Chinese party-state is looking to develop five ports in the Adriatic and use them as a hub to access new rail lines and transport networks to Germany and Central Europe. Italy’s strategic location can cement Beijing’s presence in the region and act as a gateway to the rest of the continent.

What Rome’s Endorsement Means for Europe

Italy’s rallying behind BRI officializes Beijing’s gradual acquisition of significant parts of the Italian economy. In the energy sector, Chinese state-owned companies have acquired large stakes in CDP Reti, which controls Italy’s electricity grid operation and gas distribution, and Eni and Enel, two major Italian energy groups. Business deals signed on the margins of the MoU aim to deepen those ties. Even in sectors left out of the BRI, such as telecom, problematic Chinese entities such as Huawei are well integrated into the Italian landscape. Rome’s endorsement of BRI is an explicit encouragement for Italian companies to pursue economic opportunities with Beijing.

The size of Italy’s economy and its integration with that of fellow EU-members also means that its now official rapprochement with China creates negative externalities for countries along the Mediterranean that would rather keep an arms-length relationship with Beijing. Since 2017, the French government has been delaying the acquisition of a French shipyard by an Italian company. A key factor in the authorities’ stalling are concerns that a close partnership between the Italian buyer and a Chinese state-owned shipbuilder would lead to highly sensitive technologies being siphoned out of Europe. Similarly, in the wake of the March 2019 MoU, Spain has moved to make it harder for Enel to sell its 60% stake in the Spanish utilities giant Endesa to a hypothetical Chinese buyer.

These examples highlight how one EU member state’s increased economic proximity with a powerful authoritarian country can create vulnerabilities in strategic sectors across the EU. To address this flaw, the previous Italian administration called for more harmonized investment screening processes throughout the EU. But the current governing coalition chose to abstain from a vote on the relatively modest text that was adopted in March 2019. Even under the new European legislation, if a Chinese company were to acquire an Italian strategic asset, it would be up to the Italian government to rule on whether to allow the acquisition or not.

More than Economics

The lack of independence of Chinese economic actors means that their actions are rarely guided by purely economic considerations. Operating a business large enough to invest abroad requires at least tacit approval by the Party-state and state-run conglomerates control many of the country’s most important industries, blurring the boundaries between government, security, and economic interests. As a case in point, the two Chinese companies investing in European ports, China Ocean Shipping Company and China Merchants Port Holdings, are state-owned; the former received $26 billion from China Development Bank to invest in BRI-sanctioned projects in 2017. And even investments by seemingly private Chinese companies often exhibit a close degree of alignment with state priorities. The current disputes around the exact nature of Huawei’s relationship to the Chinese state highlight this ambiguity. Allowing Chinese companies to invest in and acquire critical European assets gives the world’s largest authoritarian state more sway on the continent and plays into its long-term geostrategic vision.

Michele Geraci, the main instigator of Italy’s realignment, has spent years as a professor in China, even as the authorities are clamping down on academic freedom, including at his institution, and seems to have assimilated Beijing’s tendency to conflate security and economic issues. In a controversial op-ed from 2018, he called for partnerships with China in a wide range of areas, including “exchange of information” in the realm of “public security”. With Beijing increasingly viewed as the architect of a domestic technology-based panopticon with global ambitions, the backlash to Geraci’s plan has made him reframe his efforts as “devoid of any geopolitical intent”. Nevertheless, the vague wording of the MoU and Geraci’s initial openness to security cooperation with a government whose state apparatus relies on draconian censorship and re-education camps should concern everyone in Italy.

Having Italy, one of the continent’s largest economies, break ranks with its neighbors and allies to pursue an authoritarian regime’s foreign investment is significant for Europe as it damages the ability of the EU to speak to the Chinese party-state with one voice and lowers its chances to push back against Beijing’s moves to tilt the scales of global trade in its favor. Signing up to BRI is about more than infrastructure, it is about lending “legitimacy to China’s predatory approach to investment [with] no benefits to the Italian people”. Whereas Marco Polo returned to Venice a rich man, Italy’s recent realignment risks costing it both valuable economic assets and some close European friends.

The views expressed in GMF publications and commentary are the views of the author alone.