Can Italy leave the Belt and Road Initiative without a backlash?

On 10 September, at the G20 summit in New Delhi, Italy’s prime minister Giorgia Meloni announced her country’s exit from China’s Belt and Road Initiative (BRI), which Italy joined in March 2019. Meloni’s words were rather accommodating, saying that despite the exit there would be a “strengthening” of bilateral cooperation between the two countries and even a “mutually beneficial” partnership to come. But neither Italy nor China has clarified what form such cooperation will take.

Italy’s official BRI exit should not come as a surprise. During the summer 2022 Italian election campaign, Meloni called Italy’s adherence to the BRI a “mistake”. Data tends to support this view.

Compared to other European Union countries, Italy does not fare well either on trade or investment relations with China and the BRI has not changed this. Italy’s exports to China increased to $18.6 billion by the end of 2022 compared to $14.5 billion in 2019, while Italy’s imports from China increased from $35.4 billion to $65.8 billion. Italy thus has an increasingly large bilateral trade deficit with China (from minus $20.9 billion in 2019 to minus $47.3 billion in 2022), despite rebalancing an unbalanced trade relationship being one of the goals of Italy’s BRI membership. As for investment, China's outbound foreign direct investment into Italy plummeted from $650 million in 2019 to barely $20 million in 2020, which is worse than the general slowdown in China’s outbound investment globally.

But the question now is no longer about the benefits or costs of the BRI, but rather the consequences of leaving, something no BRI partner country has done officially. A former under-secretary in Italy’s ministry of economic development, Michele Geraci, has stated that there would be heavy economic consequences for Italy if it were to leave the BRI.

Past experiences of deteriorating bilateral relationships between China and Western countries are not encouraging for Italy. For example, when a Taiwan Representative Office opened in Vilnius in November 2021, China retaliated against Lithuania by stopping all imports from Lithuania and even banned some German goods with Lithuanian components. However, Lithuania is much smaller in economic size than Italy and the reason for retaliation was a much more obvious redline for the China, namely because of the official treatment of Taiwan. A more relevant example might be that of Australia, where-then Prime Minister Scott Morrison endorsed an inquiry into the origins of COVID-19 in early 2020, angering China. Following this, China started imposing very high tariffs on some Australian exports. 

Both Lithuania and Australia’s cases had a high political content. The issue for Meloni, therefore, will be whether the decision to leave the BRI is considered as political by Chinese leaders.

Meloni's choice of a multilateral setting like the G20 summit for the announcement is unlikely to have pleased the Chinese. Among several reasons given in the media for President Xi’s absence from the G20 summit, Meloni’s intended official announcement to exit BRI could well come high in the list. However, Meloni’s signalling of potential new agreements with China might have mitigated China’s loss of face, since Chinese officials have so far remained rather silent on the issue.

Meloni’s more balanced approach to exiting the BRI, compared to the strident call for a rapid BRI exit during her electoral campaign, reflects Italy’s two conflicting constraints. Italy is a founding NATO member and Meloni has been one of the most critical voices against Russia’s invasion of Ukraine, which China has – at least indirectly – been supporting.

Meloni’s most powerful constituency is the business sector which she needs to keep on her side. The sector is clearly using their lobbying power to remain in a reasonable working relationship with China. Many of these business groups depend on China either for its market or for sourcing goods back to Italy. Meloni’s decision to opt for a multilateral platform to announce the exit while still promising a continuation – if not upgrading – of business cooperation might allow Italy to escape the BRI without too heavy a retaliation from China.

Meloni’s handling of Italy’s exit from the BRI is important for the rest of the world. She chose a multilateral setting for the announcement but has clearly avoided confrontation by floating the idea of renewed bilateral cooperation with China. How this cooperation shapes up will be watched carefully, not only in the EU but also by other BRI members who are disappointed enough to also consider exiting.