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Business Commentary China’s embrace of Italy is not about investments; it’s about influence in Brussels

Chinese President Xi Jinping on Friday was given an Italian welcome worthy of the return of a conquering Roman emperor. On a warm, sunny day, the red-carpet treatment in all its flummery included horse guard escort, a private tour of the Colosseum and a state dinner with Italian President Sergio Mattarella in the Quirinale Palace, where the talent was opera star Andrea Bocelli.

The ostentatious display marked a historic occasion for the populist Italian government: Italy will become the first Group of Seven country to join China’s Belt and Road Initiative (BRI) when, on Saturday in Rome, Mr. Xi and Italian Prime Minister Giuseppe Conte are to sign a BRI memorandum of understanding.

The spectacle of reviving the ancient Silk Road delighted the leaders of the Five Star Movement, which forms half of Italy’s ruling coalition and whose resident sinologist, Undersecretary of State Michele Geraci, was the driving force behind the deal. But the spectre of Italy possibly slipping into China’s economic hinterland disturbed many commentators and some of Italy’s main Western and NATO allies, notably the United States. They warned that Italy was making a deal with the devil and would get burnt alive.

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Last week, White House’s National Security Council said in a tweet that “Endorsing the BRI lends legitimacy to China’s predatory approach to investment and will bring no benefits to the Italian people.” On Thursday, Steve Bannon, U.S. President Donald Trump’s former chief strategist, told an audience in Rome that Italy’s lunge for BRI inclusion feeds into China’s “rapacious strategy for global domination,” and that all the infrastructure spending that forms the heart of BRI – ports, rail, roads – constitutes “debt-trap” diplomacy.

No other G7 country plans to join the BRI even if almost half of the European Union countries – most of them small – are already on board. The Italian supporters of BRI argue that the deal is needed to attract investment to a country that recently slipped back into recession and grease the skids for more Italian exports to China.

China’s BRI deal with Italy certainly comes with an agenda, but it’s not what you think it is. It’s not really about investment or building ports or finding new markets for Chinese-made junk; instead, it’s all about buying political influence in the EU, through Italy, the EU’s third-largest economy. The dollars, euros and yuan that finance the BRI are not really the point.

The BRI itself is actually no big deal in the sense that there was nothing stopping China from making investments in Italy, or the rest of Europe, before Mr. Xi formally gave a name to the development strategy in 2013. According to a Financial Times article by Mr. Geraci that was published on Friday, along with other sources, Britain over the last 15 years has attracted some €90-billion of foreign direct investment from China. Germany has attracted €45-billion and Italy €22-billion. Chinese investors own Italy’s Pirelli, one of the world’s top tire makers and have a big stake in Deutsche Bank. Until recently, Chinese businessmen owned Britain’s Aston Villa and Italy’s AC Milan soccer teams.

Nor did the lack of BRI prevent China from investing in European ports, some of which are in countries, such as France and Netherlands, that probably will never join the BRI. China’s biggest port investment in Europe, in Piraeus, near Athens, was made in 2016, two years before Greece signed up for the BRI.

Furthermore, the BRI is vague and non–committal – the opposite of a formal bilateral trade agreement, which will set out tariff schedules and dispute-resolution mechanisms. In the Italy-China case, it obligates neither country to sign cheques for anything. In reality, the standard BRI agreement is non-binding boilerplate. But the ceremonies surrounding BRI signings would have you think that they come with pots of Chinese gold.

Still, BRI carries enormous symbolic significance, especially in Italy’s case. Italy is a founding member of the EU, the second-biggest maker of industrial products in Europe behind Germany, a member of both the G7 and G20 and a key player in NATO. It’s one thing for Greece to support BRI, it’s quite another for Italy to do so. The signing in no way signals a strategic U-turn for Italy, away from the West; it does tilt the country a little bit closer to China’s expanding sphere of influence.

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That matters because the EU is reassessing its relationship with China. The debate is whether to take a tough approach to China as it did 30 years ago, when it put an arms embargo in place after the Tiananmen Square massacre. Just recently, the European Commission, the EU’s executive arm, labelled China a “systemic rival,” a rather ominous term that could see restrictions placed on Chinese investment and trade unless the Chinese government and its agencies cleans up their acts on transparency, procurement, subsidies, pollution and other matters that meet with a critical eye in Brussels.

The White House is on the verge of an all-out trade war with China – see the Huawei case. Europe isn’t even close to one but that could change.

Now, look at what’s happening. Italy, as of Saturday, will have officially been seduced by Mr. Xi’s cheesy grins. The new Silk Road will have come to Rome. Italy’s government will declare victory and promise jobs as China sizes up Italian investment opportunities and Italian ports – Genova, Trieste, Palermo – lobby for Chinese attention. Italy is not a Chinese ally, but might become more favourably disposed to the Chinese strategic agenda.

Why does that matter? Because the EU, in spite of Brexit, still exists and still negotiates trade deals and sets competition and investment agendas and standards on behalf of member states. Italy will have a big say in European Commission votes that require a qualified majority or unanimity. Italy may be able to dull the sharp edges of any proposed new EU policy view toward China. Mr. Xi might call that priceless.

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