China-Italy Trade: Beyond the Belt and Road Initiative

06.27.2024

After a 5-year trial, Italy has decided to withdraw from the Chinese Belt and Road Initiative and is seeking to further develop the bilateral relationship outside of this framework

As the only G7 country in the Belt and Road Initiative (BRI), both Italy’s decision to join in 2019 and leave in 2023 communicated significant political messages.

2019-2023: China-Italy relations during the BRI

When comparing 2019 to 2023, Chinese exports to Italy grew by 50%, and Italian exports to China rose by 48%. The growth rate in both directions significantly outperformed China’s trade with the EU as a whole, as well as with France and Germany individually.

To start with, the sudden surge of infections in China in the first few months following the re-opening resulted in a drastic growth in Italian pharmaceutical exports to China in the first quarter of 2023. Secondly, the products Italy exports were well suited to Chinese demand after the reopening.

Chinese Investment in Italy

The BRI has often been associated with gigantic Chinese investment projects, especially in infrastructure. The two ports highlighted in the 2019 Memorandum of Understanding (MoU) — Port of Trieste and Port of Genoa — have seen mixed results. In the case of Trieste, the throughput linked to China has been declining after the initial increase in 2019. For Genoa, after record highs in volumes for 2021 and 2022, volumes in 2023 were back to the level of those of 2018. Research suggests complex administrative and political factors behind the limited tangible Chinese engagement in these two ports.

In spite of not having generated as many large Chinese investment projects as some of its neighbours, Italy has nevertheless attracted two major Chinese automakers, GAC and Geely, who have located their European design centres in Italy (Milan) and project further localisations.

2024 and beyond: In the Post-BRI era

It may be too early to be able to evaluate the impact of the Italian withdrawal from BRI, but the transition seems to have been rather uneventful. Italy hopes to carry on developing economic relations with China.

Italian Imports from China

The warming up of European demand for Asian products, possibly driven by re-stocking in retail, could contribute to a surge in Chinese exports of consumer goods to the Italian market. Chinese new export orders entered expansion again after 9 months of contraction.

Furthermore, the current drivers of Chinese exports, EVs and solar panels, are expected to continue expanding in European markets, including Italy. In 2023, despite Chinese exports to Italy falling by 18% globally, the two sectors grew by 69% and 28% respectively.

Italian Exports to China

The surge in exports recorded in 2023 is unlikely to be repeated in 2024, since it took place in the particular context of the end of the Zero-Covid policy in China. However, Italian consumer products, and food and beverage industries may continue to benefit from a stable luxury market and strong service consumption in China.

At the same time, there are questions about China’s reactions to the EU’s regulations and its investigations into Chinese products, and the impact this will have on Italian exports.

It should be noted that luxury products, based on recent history, seem to be relatively resilient to geopolitical upheavals. For example, despite being caught in the crossfire of geopolitical tensions in 2019, the sale of luxury goods in China continued to grow that year.

Finally, while seeking to maintain a strategic partnership with China outside of the BRI framework, under the current government Italy has been actively expanding its presence in the Indo-Pacific region, as other major European countries have been doing. The country especially aims to foster closer state relations with Japan and India, both economically and politically. But the desire for cooperation at a state level is going to take time to be translated into concrete commercial exchanges.

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