Italy Leads Europe Into China’s Embrace

(Bloomberg) --

Italy is ready to lead other European countries into signing up for China’s new Silk Road, despite U.S. and other allies’ concerns at Rome’s new openness towards the Asian giant, a senior government member said ahead of President Xi Jinping’s visit to Rome.

“The Silk Road is already in Europe. The train to China leaves from Duisburg in Germany,” Michele Geraci, undersecretary at the Ministry for Economic Development, told Bloomberg Television as he defended Rome’s decision to volunteer for a role in Xi’s massive Belt and Road infrastructure project.

“I do think that Italy leading the remaining European countries along the Silk Road could actually entice other countries to join,” said Geraci, the architect of Rome’s openness to China. He added signatories could shape “a European unified strategy” aimed at the development of countries in Africa, the Middle East and along the Silk Road.

Italy will on Saturday be the first Group of Seven country to sign a Belt and Road memorandum, fueling U.S. worries about an open door for China into strategic sectors like telecoms and ports. European Union allies have also voiced disquiet about Italy’s bilateral approach, seen as deviating from the group’s policy of dealing with China as a bloc.

Asked about his plans to brief EU partners on Italy’s memorandum, Prime Minister Giuseppe Conte told reporters as he arrived for a summit in Brussels: “As we are a family I will dutifully inform my partners about what we’re doing, but it’s obvious that we are in full agreement, there is no problem.”

‘Constant Dialogue’

Geraci said Italy has had “a constant dialogue” with allies. “The fact is that already almost half of European countries have already signed the MOU,” said Geraci, adding that European countries “have signed and put money for the Asian Infrastructure Investment Bank which is the financing arm of the Belt and Road.”

Xi’s visit to Italy, from Thursday, and then to France coincides with pressure from Washington on European allies to ban Huawei Technologies Co. from future 5G telecom networks. Geraci said the memorandum of understanding was a separate issue.

“The MOU that we will be signing this weekend has nothing to do with 5G. There are no names of specific companies, so the name Huawei is not mentioned, neither are any of the Italian or Chinese company names mentioned,” Geraci said.

Brushing aside worries that China could penetrate Italian strategic sectors, Geraci referred to the so-called Golden Power rule to safeguard national interests in deals with foreign entities. Geraci said the rule is “one of the strongest in Europe” and “prevents predatory M&A coming in Italy.”

Xi will be meeting President Sergio Mattarella and Italian business leaders on Friday before signing the memorandum on Saturday with Conte and Deputy Premier Luigi Di Maio, who is also economic development minister.

Geraci dismissed financial market speculation that China might be ready to buy Italian government bonds. “The Italian bond market is one of the most liquid bond markets in the world, yields may be attractive for some investors,” Geraci said, adding the secondary market is open.

“If any country wishes to purchase Italian BTPs, they can do that, but that’s not a direct relationship at government-to-government level,” Geraci said.

Italy’s ranking as a G-7 member will serve it in dealings with China, Geraci said, adding that “just because of that we are less likely to fall into problems such as the debt trap or Chinese over-investment.” Italy’s economy is “large enough to shoulder any potential hot money coming into the country, in fact we need a little bit of investment,” he said.

--With assistance from Flavia Rotondi and Kevin Costelloe.

To contact the reporter on this story: John Follain in Rome at jfollain2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Alessandra Migliaccio, Chiara Albanese

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