Italy Rethinks Its Close China Ties as US Backs Stronger Break
Comment of the Day

April 24 2023

Commentary by Eoin Treacy

Italy Rethinks Its Close China Ties as US Backs Stronger Break

This article from Bloomberg may be of interest to subscribers. Here is a section:

“Italy is stuck between a rock and a hard place, and what to do with the cooperation pact is a real diplomatic conundrum for Meloni,” Francesca Ghiretti, an analyst at the Mercator Institute for China Studies research firm, said in an interview.

“Renewing it would send a very difficult message to Washington, but not renewing it would put a strain in relations with China.”

With US-China relations deteriorating, Beijing is looking to prevent Europe from following Washington, particularly on measures like export controls of key technologies. The EU is struggling to balance a desire to engage with China on trade and investment with resisting economic coercion.

Eoin Treacy's view

Memoranda of Understanding (MOUs) are not worth the paper they are written on. More often than not, they are an opportunity for politicians to stand around congratulating one another and make for good headlines. Concrete efforts to follow through on these photo opps is a lot more difficult. That’s exactly where Italy’s MoU on the Belt and Road Initiative sits. It is about to expire but nothing has been done to further it since it was signed. Nevertheless, refusing to re-sign is a PR mess.

Italy sells a lot of machinery and luxury goods in China. In fact many of the smaller luxury goods and furniture factories in Italy were bought by Chinese businesspeople in the aftermath of the credit crisis. Made in Italy now means finished in Italy for many products. That also means Italy and China will be trading together regardless of whether the MoU is re-signed or Italy develops closer ties with Taiwan.

Italian government bond spreads are nowhere near alarming levels which suggests this question is not a priority for investors.

The FTSE MIB found support in March in the region of the upper side of the long-term base formation. That suggests the benefit of the doubt should be given to the upside. 

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