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Italy’s China Card in EU-US Relations

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Italy’s China Card in EU-US Relations

Insights from Nicola Casarini.

Italy’s China Card in EU-US Relations

Chinese President Xi Jinping attends with Italian Premier Giuseppe Conte the signing ceremony of a memorandum of understanding at Rome’s Villa Madama, Saturday, March 23, 2019.

Credit: AP Photo/Andrew Medichini

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy.  This conversation with Dr. Nicola Casarini – Associate Fellow at the Istituto Affari Internazionali (IAI) in Rome and Fellow at the Wilson Center in Washington DC; author of “Remaking Global Order: The Evolution of Europe-China Relations and its Implications for East Asia and the United States” (Oxford University Press) – is the 251st in “The Trans-Pacific View Insight Series.” 

Explain Rome’s calculations behind Italy’s “China Card,” as outlined in your recent article

Italy wants to enjoy the benefits of the alliance with the United States and at the same time take advantage of the economic opportunities of the Chinese market. Italy’s “China card” explains how the current Italian government intends to forge closer ties in trade, finance, and industrial cooperation with Beijing, even if that creates uncertainty – and potential tensions – with Washington. It is the realization among some of Italy’s political and corporate elites that while the security of the country will continue to depend on the military alliance with the United States, Italy’s economic well-being – severely hit by the pandemic-induced lockdowns – will increasingly depend on closer ties with the Asian giant.

What is China’s role in Italy’s mounting sovereign debt and fragile economy?

China is now increasingly perceived by some Italian politicians, in particular within the center-left Democratic Party and the Movement 5 Stars (the two political forces supporting the current coalition government in Rome), as a potential savior, should Italy’s debt fall under speculative attacks. The proponents of closer Rome-Beijing ties hope in fact that China would come to rescue Italy, should the country fall prey to international speculation – an assumption based on several declarations, and unofficial promises, made by Chinese leaders to the Italian government in recent years, in particular after the signature of the Memorandum of Understanding on the Belt and Road Initiative in March 2019.

How is Rome monitoring China’s investments in Italy’s strategic sectors?

In 2012, Italy adopted the so-called Golden Power rule, a new piece of legislation which provides special powers to the government to screen foreign direct investments, notably from China, in strategic sectors to safeguard ownership and protection. In 2019, this regulation was strengthened to include and regulate 5G networks. However, there remains a certain degree of uncertainty as to the effectiveness of the golden power regulation, as shown by the case of Huawei. In July this year, the Italian government activated the Golden Power rule against Chinese information and communications technology (ICT) companies, following pressure from the United States to do so. As a result, Telecom Italia (TIM)  ̶  the largest telecom operator in Italy – and WindTre – Italy’s second largest telecom operator  ̶  announced their decision to exclude Huawei from a public procurement call for the development of their upcoming 5G networks. Fastweb  ̶  the Italian unit of Swisscom  ̶  did the same in October.

However, the problem with the Golden Power rule is that it must be activated by the government on a case-to-case basis. It means that in the future, unless the government invokes it on the specific case of Huawei’s development of 5G networks, the Chinese ICT company can continue to participate in biddings for 5G networks, something that could become reality as of next year, when a change of mind of Italian telecom operators – and absent an intervention of the government  ̶  would re-allow Huawei to bid for 5G networks.  This shows a dichotomy between the intention of the government to monitor – and eventually place limits on  ̶  Chinese investments in Italy’s strategic sectors and the reality on the ground.

Examine the geopolitical implications of Italy’s China policy on EU-China relations.

There are two dynamics at play here. On the one hand, the current government – a coalition between the center-left Democratic Party and the Movement 5 Stars (M5S) – seeks to support a unitary EU approach towards Beijing, a stance embodied by Italy’s Minister of European Affairs Vincenzo Amendola, a member of the Atlanticist wing of the Democratic Party. That approach is in line with the tradition of the previous Gentiloni government – in power until March 2018 – which had joined Germany and France in sending a letter to the European Commission in February 2017 to back calls for an EU-wide investment screening mechanism clearly aimed at Beijing.

On the other hand, there is the China-leaning position of Luigi Di Maio, Italy’s foreign minister and leader of the Movement 5 Stars. He was the main supporter of the Italy-China Memorandum of Understanding, signed in March 2019 without consultation with European partners. Di Maio is possibly one of the staunchest supporters in the West of closer ties with Beijing. During the visit of Chinese Foreign Minister Wang Yi to Italy at the end of August 2020, Di Maio declared that China is a key strategic partner of Italy, carefully avoiding contentious issues. Unsurprisingly, the Italian foreign minister was not invited to co-sign an opinion piece published by The Washington Post in mid-November, where French Foreign Minister Jean-Yves Le Drian and German Foreign Minister Heiko Maas declared that the U.S. and the EU should “consult each other to coordinate their approach to China on human rights, digital infrastructure and fair trade.” When it comes to China, the Movement 5 Stars  ̶  the party which holds more than one-third of the seats in the Italian parliament  ̶  and its main representative Luigi Di Maio are viewed as unreliable in Brussels, Berlin, and Paris. This undoubtedly weakens the EU’s China policy.

Assess the impact of Italy’s China-leaning approach on transatlantic trade relations.

Italy’s forging closer ties with China has immediate implications for transatlantic trade relations. In the ICT sector, for instance, local breakthroughs by Chinese companies are curtailing the vital sales of the U.S.’ ICT industry in Italy and Europe ($365 billion in 2017). According to Canalys, the leading global technology market analyst firm, Xiaomi has become the number two company in Italy in terms of sales of smartphones, just behind Samsung, but ahead of Huawei and Apple. In the third quarter (July-September 2020), Xiaomi has grown 122 percent, reaching 19 percent of market share. Samsung remains number one with 38 percent of market. Apple is fourth while Huawei is in third position. In fifth position there is now Oppo, another Chinese company which has seen a growth rate of 880 percent in the third quarter, reaching a market share of 6 percent. Taken together, Chinese ICT companies have acquired 41 percent of Italy’s market share in the third quarter of 2020, mainly at the expense of Apple  ̶  a trend likely to continue in the future. Italy’s China-leaning approach is thus having a sizable impact on transatlantic trade flows, at least in the ICT sector.