Half the World Worries About Italy Getting in Bed With China

(Bloomberg) -- European allies see a threat to sovereignty, the U.S. is flagging the risks of Beijing’s growing influence, and half of the Italian government is so uncomfortable that their leader, Matteo Salvini, is leaving town for the day.

And all the same, Prime Minister Giuseppe Conte on Saturday in Rome will sign Italy up to China’s Belt and Road Initiative, a transcontinental infrastructure project that critics say allows Beijing to trade present-day investment for future leverage. Italy’s state lender may also get a green light from Chinese authorities to issue renminbi-denominated bonds, further deepening ties.

The memorandum on Belt and Road will be the centerpiece of Chinese President Xi Jinping’s visit to Europe and will make Italy the first Group of Seven nation to sign up. Xi’s stay in the capital will include a gala dinner with President Sergio Mattarella and a meeting with business leaders, according to Italian officials.

Score this as a win for China fans including Giovanni Tria, Italy’s technocratic finance minister, and Luigi Di Maio, leader of the Five Star Movement, which makes up half the country’s populist government. Both see the deal as a big opportunity to bring much-needed investment to Italy’s stagnant economy.

“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, said in a Bloomberg Television interview Thursday. “I do think that Italy leading the remaining European countries along the Silk Road could actually entice other countries to join.”

Read More: Italy, China Are Said to Be Close to Agreeing Panda-Bond Deal

One Italian leader who won’t be joining the festivities is Salvini, head of the nationalist League, which makes up the other half of the coalition. He’ll be away campaigning in the south of the country and continues to grumble about Chinese attempts to “colonize Italy.”

Limited Impact

While the economic impact of a role for Italy in the Belt and Road will be limited, the symbolism of a G-7 country signing on is also causing disquiet in Washington, according to a U.S. official, who asked not to be named citing the sensitive nature of the topic.

The Xi visit also comes at a time when Washington is losing its fight to persuade allies to lock Huawei Technologies Co. out of 5G network development plans. The U.S. is concerned the Italians’ willingness to go along with the Chinese infrastructure is another sign of its allies softening on Beijing, the U.S. official said.

In the wake of criticism from Washington and European allies, Conte, who serves as a mediator between the League and Five Star, was forced to offer assurances that Italy won’t be China’s “Trojan Horse” in Europe.

Feted in France

That hasn’t been enough for allies like Emmanuel Macron. Although Xi will visit France after his Italian stop, and even dine with the president on the Riviera, Macron recently cautioned against Chinese influence.

"Europe has woken up about China," he told reporters on arrival at a summit in Brussels on Thursday. "Since the beginning of my mandate, I’ve called for a defense of European sovereignty.”

The Rome-Beijing accord, first reported by Bloomberg, is seen in Paris as a breach in what was a united front against China’s pursuit of economic domination, according to a French official, who asked not to be named due to the sensitive nature of the matter.

Macron is attempting to close ranks with his key European allies on the issue, inviting German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker to meet with him and Xi on Tuesday morning in Paris.

And unlike the visit to Italy, Xi’s visit to France won’t result in a Belt and Road memorandum, an official from Macron’s team said, though the government is looking at projects the two nations could sign. Macron will also discuss a major Airbus SE order during Xi’s visit.

Chinese investors made acquisitions worth $1.83 billion in France last year, up 86 percent compared with 2017, while investments totaled $2.52 billion in Germany, up 34 percent, according to a Baker McKenzie study. Italy’s share was down 21 percent to $800 million.

Doing Deals

That’s a source of resentment for Rome. One member of the government, who asked not to be named, noted that EU partners are doing deals with China worth millions of dollars while scolding Rome for a simple memorandum of understanding.

Italy has persuaded China to cite EU principles including transparency and reciprocity in the memorandum, another senior Italian official said.

Still, China is refusing to soft-pedal the planned accord with Rome. Writing in Corriere della Sera Wednesday, Xi called for a “global strategic partnership” covering everything from infrastructure to telecommunications to ports.

--With assistance from Gregory Viscusi.

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Jerrold Colten

©2019 Bloomberg L.P.