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Paola Subacchi is professor of International Economics at Queen Mary University of London and founding director of Essential Economics. She is the author, most recently, of The People’s Money: How China Is Building a Global Currency.

Is China’s Belt and Road Initiative (BRI) “a train that Italy cannot afford to miss,” as Italian Finance Minister Giovanni Tria says? Prime Minister Giuseppe Conte also thinks Italy should jump on board too, saying the multibillion-dollar Chinese infrastructure plan is “an opportunity for our country.”

Italy’s government plans to sign a memorandum of understanding with China on the BRI during Chinese President Xi Jinping’s visit from March 22 to 24, making it the first founding European Union member or Group of Seven country to do so. This will pave the way for Chinese investment in Italy’s infrastructure, energy, aviation and telecommunications sectors. But joining the BRI carries serious risks for Italy, and will probably also damage its relations with the EU and the United States.

True, deeper commercial engagement with China is a no-brainer for Italy, where GDP growth has been low or stagnant since the late 1990s, and is expected to decelerate from 1 per cent in 2018 to 0.2 per cent this year. China, on the other hand, boasts the world’s second-largest economy after the United States. It is the world’s biggest exporter, an increasingly significant overseas investor, and is gradually rebalancing its growth model toward domestic demand.

With annual trade between China and BRI countries projected to exceed US$2.5 trillion over the next 10 years, closer bilateral ties with China could give Italy’s exports a boost. Italian exports to China currently total roughly €13-billion ($19.7-billion) a year, while imports are approximately €29-billion. Moreover, a partnership with China could attract the additional capital inflows that Italy sorely needs, given constrained lending by its banks.

Nonetheless, there are several compelling reasons why Italy should not go down this bilateral BRI route with China, but rather deepen engagement with it as part of the EU’s 2016 Strategy on China.

For starters, Italy’s interests may not be aligned with those of China. BRI is a development strategy to provide overseas markets for Chinese firms, channel resources through international financial centres and support the international use of the renminbi. It remains to be seen how these objectives can be squared with Italy’s.

A second, related reason is that Italy risks being the junior partner. The Italian economy is weaker: Public debt amounts to 130 per cent of GDP, and struggling enterprises, including the flagship airline Alitalia, need restructuring and recapitalizing. It is hard to see how a partnership with China could be balanced and reciprocal.

The third reason is more operational. Several years after China launched the BRI, its overall framework remains ill-defined, with murky objectives and opaque governance. And rather than being underpinned by Chinese-led multilateral organizations, such as the Asian Infrastructure Investment Bank (AIIB) or the New Development Bank, the BRI is based on bilateral agreements with China and direct partnerships and joint ventures with Chinese enterprises, many of which are state-owned.

Fourth, Italy is institutionally weak, with many badly run private and public institutions, a dysfunctional tax system and widespread corruption. The country ranks 53rd in Transparency International’s corruption index, scoring well below the EU’s core economies, meaning Italy may not be in a position to ask Chinese partners to comply with EU rules and standards.

Finally, cyberespionage and other mischief by Chinese actors could undermine the credibility of Italian companies in industries such as information and communications technology, infrastructure and defence.

Unfortunately, the Euroskepticism of many leading Italian government ministers has blinded them to these risks – and to the fact that Italy needs all the friends it can get in Brussels.

Jumping on the Chinese train has not gone down well in Washington, either. The warning from U.S. President Donald Trump’s administration, with which many members of Italy’s cabinet have a close affinity, has been unambiguous. Italy ignores this at its peril.

The entire BRI episode may of course turn out to be a tempest in a teapot, ending in a last-minute fudge. But regardless of the outcome, this is not merely a spat caused by an Italian government with no sustainable long-term plan. Rather, it is the latest sign of the tense global rivalry between the United States and China.

True, the United States has a track record of reprimanding allies when it thinks they get too close to China, as the Obama administration did when Britain joined the AIIB in 2015. But American engagement then was constructive compared with today’s open U.S.-China confrontation under Mr. Trump. “With us against China or with China against us” is Mr. Trump’s implicit message to Italy and the rest of the world.

This does not bode well for a peaceful rebalancing of the global economic order. Italy would be wise to tread carefully.

Copyright: Project Syndicate, 2019.

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