Caught in the middle? Italy and China after COVID-19

If we look only at trade figures, Sino-Italian relations might not be considered worth our attention. In fact, they are very lop-sided. For Italy, China is not a significant partner, accounting for 3.4% of exports and 7.2% of imports. For China, Italy is even less important, representing less than 1% of both imports and exports. So why should we bother?

There are at least two reasons to be interested in Sino-Italian relations.

The first is that bilateral trade explains only a part of the economic interconnections, since China and Italy are linked through complex global supply chains that involve other countries. For example, automotive components produced in Italy that are exported to Germany, end up in China in the export of German cars.

The second reason has to do with the global implications of the political economy of bilateral relations, before and after COVID-19.

Italy is a highly-indebted country with a public debt/GDP ratio that was already one of the highest in the West and is expected to grow further. In addition, the Italian manufacturing structure – based on small and  medium-sized enterprises (SMEs) – is often undercapitalized. This indebtedness will be put under further pressure, due to lack of demand and liquidity constraints arising from the pandemic.

The stronger presence of Chinese investors in Italy is considered a serious concern both in Europe and in the US; as Italy is seen as a possible Trojan horse for Chinese interests in the EU – especially after Italy signed in 2019 a Memorandum of Understanding (MoU) on the Belt and Road Initiative (BRI).

The decoupling of the US economy from China may also influence Sino-Italian relations, as trade and investment in technology could be limited by eventual American sanctions. Italy’s room to manoeuvre will depend then on how the US-China relations will evolve.

In the medium term, Italy needs to develop its own Chinese strategy, defined within the EU framework. Only an EU-wide common strategy will open some space for Rome to shape a more tailored approach to Italy’s specific needs and interests, but at the same time coherent with the Italian Republic’s long-term foreign policy pillars; Europeanism and Atlantism.

In the longer term, Italy must avoid being caught in the middle of rising Sino-American competition over its economic spoils.

This post is an excerpt from “Italy After COVID-19”, a forthcoming book edited by Andrea Goldstein and Giorgio Bellettini (Bononia University Press).

Giuseppe Gabusi is Assistant Professor of International Political Economy and Political Economy of East Asia at the University of Turin.

Giorgio Prodi is Associate Professor of Applied Economics at the University of Ferrara.


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