On the 23rd of March, Italy became the first developed economy to sign up for the Silk Road project or the Belt and Road Initiative. The Belt and Road Initiative (BRI), defined briefly in the article, is a Chinese project providing funds for major infrastructure projects throughout the world. Countries in Africa and South Asia who have joined the BRI were lucratively funded for the construction of trains, roads, and ports (BBC News). Italy’s deal with China is no different; during President Xi Jinping’s trip to Rome, a total of 29 deals amounting to 2.8 billion dollars were signed. Despite growing concerns from the West and citizens of funded countries that the BRI is merely geopolitical ploy by the Chinese, Italy signed the umbrella deal. The deal offers large Italian gas and energy and engineering firms entry into Chinese markets, while promising China’s Communications and Construction Company access to the ports of Trieste and Genoa (BBC News). This trade deal is potentially good for Italy, who’s economy slipped into a recession at the end of 2018. Additionally, Italian infrastructure is under strict scrutiny following the collapse of the Genoa Bridge last August and the BRI could help the country combat this issue by providing funds for infrastructure. Aside from access shipping ports, this deal with Italy is positive for China because it demonstrates that China has an important global role in the world economy (BBC News).
This article and deal is applicable to our economic development block because it deals with multinational corporations and foreign direct investment. The positive aspects of China’s foreign direct investment into Italy are that it will provide Italy with both fiscal and physical resources to construct better public infrastructure. Additionally, access for Italian corporations to Chinese markets will increase investment and help push the Italian economy out of recession. Despite these initial positive effects, granting China a geopolitical foothold in Italy through the Trieste and Genoa ports may hurt Italian political and economic relations with other Western countries. This is because many other Western nations view the BRI as a predatory deal and have refused to join. On the hand, Italy joining may reassure other countries in Europe. The difference between this deal and what we have discussed in class is that Italy, compared to countries in Africa or Latin America, is an advanced industrialized country. Allowing Italian multinational corporations to invest in Chinese markets may bring in technology and managerial expertise to China and vice versa, since Italy is allowing the Communications and Construction Company to invest as well. Conversely, multinational corporations can crowd out domestic investment by reducing the amount of funds available for investment in China and in Italy. In the examples of less industrialized countries, multinational corporations sometimes become extractive institutions, and hurt the host country. However, I believe that this is less likely with two advanced industrialized economies. Lastly, Chinese and Italian multinational corporations will potentially open marketing networks for both countries. In the future, foreign direct investment on behalf of both the Chinese government and multinational corporations on both sides will potentially allow local affiliates and domestic firms in both countries greater access to other global markets. Integration of these companies can create chances to export goods that would otherwise be unavailable to domestic producers.
BBC News. “Italy joins China’s New Silk Road project.” 23 March 2019.