Context

• Italy becomes the first member of the Group of Seven (G7) major industrialised nations to join China’s “Belt and Road” infrastructure project (BRI), which is inspired by historic, centuries-old trade routes.
• Italy and China have attempted to revive the spirit of the ancient Silk Road by deepening their trade and investment ties.

About

• China considers OBOR and its components as Chinese wisdom and a Chinese approach to benefit those outside of China.
• According to Chinese academics and policy analysts, the BRI promises to integrate China’s internal markets with those of its neighbours.
• Doing so will bring its neighbours closer to China geopolitically and bring stability to the region.
• By increasing economic activity in China’s border regions, such as Xinjiang and Tibet, the Belt and Road Initiative will lessen the appeal that separatist ideology might have to the residents.

Is OBOR in the doldrums?

• Investment decisions often seem to be driven by geopolitical needs instead of sound financial sense.
• Large state-owned enterprises and government policy provide more than 95 percent of BRI funding. BRI is not a brand investor’s trust.
• Prolonged exposure to the BRI process has driven opposition to Chinese investment and geopolitical influence across the region.

Why has Italy chosen to join BRI?

• Italy's populist government is eager for such initiatives to get underway swiftly as it battles to revitalise a sickly economy, which has slipped into its third recession in a decade.
• Italian and leading Global think tanks have been stressing on equity as a firm base for BRI. The Silk Road must be a two-way street and not only trade must travel along it, but also talent, ideas and knowledge.

Signalling fear around BRI:

• China is taking over Zambia’s international airport after a debt instalment default, while Congo is in deep debt due to China-funded projects.
• After terms are reached with a host country, funds are transferred directly into the Beijing-based bank accounts of China’s state-owned enterprises, which build the project often with Chinese materials. This is a model Beijing has employed extensively in Africa.
• Chinese governments and state-owned enterprises are willing to lend so much that BRI investments threaten to drive some countries towards default, the central government is not willing to be the lender of last resort for the countries thus driven.
• Like Pakistan last month, most countries forced to this extremity will have only one option left: come crawling to the International Monetary Fund in hopes of a solution.
• What it looks like is that the end result of Chinese investment is an even stronger dependence on the Western-led financial system.

BRI is a sign of strategic dysfunction:

• There is no evidence that it has reshaped Asia’s geopolitical realities.
• The countries that have benefited most from it are those that already had strong geopolitical reasons for aligning themselves with Chinese power, such as Cambodia and Pakistan.