Chinese economy takes another hit as Italy pulls out of the New Silk Road project

Italy has formally withdrawn from China’s global Belt and Road initiative in a further blow to China’s ailing economy. Italian Premier Giorgia Meloni had previously signalled Italy would withdraw from the agreement, which was up for renewal.

Milan daily Corriere della Sera reported that a letter with the formal notice had been delivered to Beijing in recent days. Meloni’s office declined to comment on the report.

Italy became the first G7 country to sign up to the initiative in 2019, when the populist, anti-establishment Five Star Movement party-led government promoted it as a way of boosting trade with China while getting investments in major infrastructure projects. But neither materialised.

In the intervening years, Italy’s trade deficit with China has ballooned from £17billion (20bn euros) to £41bn (48bn euros). Investments in Italian ports once hailed in newspaper headlines were never realised.

Ms Meloni, who was in opposition at the time, was against the deal from the start. Italy’s foreign minister, Antonio Tajani, said this summer his country had not “obtained great results” from the pact.

Analysts said Italy had little incentive to continue with the deal and that China can fall back on the face-saving narrative Italy dropped out under pressure from the US.

The Belt and Road initiative sees Chinese companies building transportation, energy and other infrastructure overseas funded by Chinese development bank loans.

It has built power plants, roads, railroads and ports around the world, deepening China’s relations with Africa, Asia, Latin America and the Middle East.

It is a major part of Chinese President Xi Jinping’s push for China to play a larger role in global affairs. More than 150 countries have signed Belt and Road agreements with the Asian giant.

China has been grappling with sluggish foreign trade this year amid slack global demand and a stalled recovery despite the country’s reopening after its strict COVID-19 controls were lifted late last year.

The country’s exports rose in November, the first increase since April, while imports fell, according to customs data released on Thursday (December 7).

Exports rose 0.5 percent from a year earlier to £232bn ($291.9bn) in a sign demand may be picking up after months of decline. Imports fell 0.6 percent, to £177.6bn ($223.5bn), after climbing three percent in October.

Trade with Japan, Southeast Asian countries, the European Union and US has declined this year. Demand for Chinese exports has been weak since the Federal Reserve and central banks in Europe and Asia began hiking interest rates last year in a bid to cool inflation at historic highs.

China’s property sector also remains a drag on the economy, with sales slumping and developers struggling to pay down huge levels of debt.

Meanwhile, the 24th China-EU summit was held in Beijing on Thursday.

During his talks with President of the European Council Charles Michel and President of the European Commission Ursula von der Leyen, President Xi underscored the importance of China-EU relations for global stability and peace.

He urged both sides to step up cooperation and handle their differences through dialogue.

Xi said: “We should not view each other as rivals just because our systems are different, reduce cooperation because competition exists, or engage in confrontation because there are disagreements.”

Echoing the Chinese leader, Michel and von der Leyen said the EU doesn’t want to decouple from China, instead seeking a long-term, stable, predictable and sustainable relationship with the hopes the summit would help reenergize relations between the two sides.

President Xi told the EU leaders: “As China pursues high-quality development and high-standard opening up, it sees the EU as a key partner for economic and trade cooperation, a preferred partner for scientific and technological cooperation, and a trustworthy partner for industrial and supply chain cooperation.”

Despite their differences, China and the EU have remained each other’s second-largest trading partners.

This year marks the 10th anniversary of China’s Belt and Road initiative. During the meeting, Mr Xi expressed China’s willingness to strengthen Belt and Road cooperation, including through ties with the EU’s Global Gateway, which seeks to boost transport, energy and digital links.

The China-Europe Railway Express, a flagship part of the Belt and Road initiative, has provided services for 217 cities in 25 European countries with some 81,000 China-Europe freight train trips up to the end of November, according to China’s National Development and Reform Commission.