How Beijing Grabs Technology: 2 Chinese Firms Allegedly Took Control Of Italian Drone Maker On The Sly

Two Chinese state-backed firms took over an Italian military drone manufacturer in 2018 through transactions made under an offshore company, a news report revealed this week. The takeover was accomplished while leaving Italian and European authorities in the dark, the report said.

Offshore company Mars (HK) Information Technology in 2018 purchased a 75% stake in Italian drone maker Alpi Aviation for 4 million euros, which is approximately $4.6 million, then started processing the transfer of Alpi’s technical and intellectual property to a new production site in China, the Wall Street Journal reported.

Besides the stake purchase, Mars invested a separate 1.5 million euros in the Italian company. Italian police pointed out that the amount was an overpayment on Mars’ side, the Journal further reported.

Local police also found that Mars had ties to two Chinese state-owned firms, the report revealed. An investigation has been launched into the deal to determine whether there were lapses in notifying the Italian government about the stake sale and other ongoing activities regarding the transfer of technology and the potential start of production in China.

In September, Reuters reported about an inquiry initiated by the Italian government into Alpi’s stake sale to two Chinese firms. At that time, a source with knowledge of the matter told the outlet that the two Chinese firms linked to Mars were CRRC Capital Holding and China Corporate United Investment Holding. The source said the latter was controlled by the Wuxi municipal government.

The outlet also quoted local tax police head Stefano Commentucci as stating that the stake and technology sale was “clearly just a predatory investment in technology… and this type of investment in this sector is forbidden.”

The Journal quoted a statement from Alpi wherein the Italian company, which the report stated has supplied the Italian Air Force in Afghanistan with drones, denied there were laws violated or broken during the transfer of technology and strategic information from Italy to China. The company insisted that its stake sale was carried out transparently.

According to the Journal, the latest revelation unveils loopholes in Europe’s sensitive technology sale and purchase regulations.

Analysts said the silent takeover of Alpi may suggest a pattern in which Chinese state-controlled firms hide beneath the names of private shell companies to take control of companies with necessary technologies.

While European regulators usually trust companies to self-report relevant acquisition deals should the deals indicate any signs of security threats, some analysts argued that the said approach may instead allow risky acquisitions to pass through regulatory monitoring.

Meanwhile, three sources with direct knowledge of the situation told Reuters that Italy will issue a formal notice to all parties involved in the Alpi acquisition to demand clarifications on details of the takeover. Alpi’s lawyers previously said the company was compliant with all rules during the transactions.