Italy Moves to Weaken China Ties Without Upsetting Beijing

(Bloomberg) -- When Foreign Minister Antonio Tajani travels to China this weekend, he’ll be balancing two competing interests: laying the ground for Italy’s exit from a controversial investment pact with Beijing while also trying to avoid a rupture with the world’s second-largest economy.

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During a three-day trip starting on Saturday, Prime Minister Giorgia Meloni’s deputy will meet with Chinese Foreign Minister Wang Yi and other officials to discuss the possibility of leaving the Belt and Road Initiative, an investment pact designed to deepen economic ties with allies. Just before boarding a plane to China, Tajani said that the 2019 agreement had fallen short of expectations.

“Belt and Road was a decision made in the past,” Tajani told Francine Lacqua in a Bloomberg Television interview on Saturday at the Ambrosetti Forum in Cernobbio, Italy. Regardless of what Italy decides regarding the pact, “it will not be a message against China,” he said.

Bloomberg reported earlier that Italy was signaling to allies that it intended to pull out of the BRI. But delivering on such a scenario will require a significant diplomatic effort.

Meloni has said she will visit China in the coming months as part of the outreach started by Tajani. The issue is sensitive, particularly since the Chinese ambassador to Italy had warned there would be “negative consequences” for Rome if it withdrew from the agreement.

Italy must decide by the end of the year whether to renew its involvement in the program that was once the backbone of Chinese President Xi Jinping’s efforts to deepen economic ties across the world.

Italy’s membership in the BRI has turned into a dilemma for the government after making it an outlier among the Group of Seven countries. It raised questions about Rome’s foreign alliances at a time of an increasingly fraught rivalry between China and a US suspicious of Beijing’s ambitions.

The impact of the controversial pact with China on trade has been twofold, according to Bloomberg calculations based on Eurostat data.

While imports from China accelerated between 2020 and 2022, following the signing of the Belt and Road memorandum, the trend has been more volatile for exports. After growing almost 20% in 2021, they only rose 5% last year, lagging behind the pace of inflation.

Tajani said Italian exports to China in 2022 totaled about €16.5 billion ($17.8 billion), behind both Germany and France. The main products Italy exports to China are pharmaceuticals and equipment. Earlier this year, exports boomed due to a spike in shipments from a Pfizer Inc. plant that produces the anti-Covid drug Paxlovid.

Italy has been caught between escalating tensions between Washington and China, which have compounded due to Beijing’s support for Russia. European countries are struggling to balance a desire to engage with China on trade and investment while pushing back against claims of economic coercion.

The European Union has urged member states to tighten export controls on technology that could be exploited by rivals and cautions not to share information with “countries of concern” that could harness AI and quantum computing for military use.

Earlier this year, the Dutch government said it would prohibit Europe’s most valuable technology company, ASML Holding NV, from shipping some of its machines to China.

Bloomberg reported earlier that the US actively pressured Rome to take a public stance on the issue and exit from the investment pact with China, according to people familiar with the talks.

--With assistance from Giovanni Salzano, Daniele Lepido, Tommaso Ebhardt and Sonia Sirletti.

(Updates with Chinese ambassador to Italy in the fifth paragraph)

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