Italy’s trade deal with China is playing with fire

Italy’s decision to be the first major European economy to join China’s massive investment and infrastructure project, the Belt and Road Initiative, can only exacerbate tensions between Italy and its neighbours.

On Saturday, President Xi Jinping and the Italian government signed a non-binding agreement for Italy to join China’s 21st-century trade route, and inked a total of 29 deals worth €2.5bn (£2.14bn) across an array of sectors.

Italy hopes that the project will boost its sluggish economy, but the deal raised more than just eyebrows in Europe and the US, with officials criticising the move.

The Belt and Road Initiative is like a 21st-century Silk Road, with the sea and land route stretching from Asia to the Middle East, Africa, and now into Europe.

China sees the Belt and Road Initiative as a way to export more of its goods to lucrative markets, while critics see the initiative as a vanity project that increases indebtedness among its participating countries.

At the heart of concerns is that the Belt and Road Initiative is seen as a way for China to spread its geopolitical influence – an acute concern for a Europe that is increasingly uncertain of its place in the world.

As such, Italy’s latest move has been seen by many as undermining Europe’s ability to compete with China’s economic might. The deal also came a day after French President Emmanuel Macron called for a coordinated European approach to China.

Italy’s anti-establishment coalition government has already clashed with Brussels over immigration and its spending plans. Its deal with China is likely to be another source of tension.

“It’s clear that this does undermine Europe’s and the west’s ability to stand up to China,” Federico Santi, senior Europe analyst at Eurasia Group, tells CNBC.

“This will be another source of friction between Italy and Europe which, ultimately, will be to the detriment of Italy itself,” he adds, although he notes that the terms of the agreement remain to be seen.

Both countries have played down concerns. Italy’s deputy prime minister Luigi Di Maio tells CNBC that the accord was “nothing to worry about”, and Xi tried to assuage concerns in Europe too, saying on Tuesday that “cooperation is bigger than competition between China and Europe.”

Macron says that, while he wants the EU to deepen its ties with China, there must be a united European front when it comes to the superpower. As he said in Brussels last week, “for many years we had an uncoordinated approach, and China took advantage of our divisions.”

With Italy pursuing its own deal with the superpower regardless of its neighbours’ concerns, China could be able to make the most of those divisions once again.