In order to advance its national, economic, and military goals, the People’s Republic of China (PRC) has resorted to using any means necessary to acquire intellectual property, technology, and trade secrets from around the world. Europe and the U.S. have borne most of the brunt of such illegal activities.
The acquisition of Alpi Aviation Srl, an Italian manufacturer of military drones, in 2018 by a Chinese state-controlled company has shed light on how Beijing is bypassing investment screening in Europe to get hold of critical technology. The company’s technology and know-how, which was deployed by the Italian military in Afghanistan, was soon passed on to China. Officials in Italy and Europe were unaware of this incident.
Investigation reveals ownership
According to Italian authorities, an independent investigation revealed Alpi’s connections with China. Guardia di Finanza, the Italian financial police, inspected Alpi’s offices two times this year. They uncovered a Hong Kong-based company that was used by the Chinese regime as a front to procure Alpi’s technical and intellectual property.
The police say that in July 2018, a company named Mars (HK) Information Technology Co. Ltd., which was incorporated in Hong Kong two months earlier, paid four million euros ($4.54 million) and acquired 75 percent stake in Alpi. A further investment of 1.5 million euros ($1.70 million) was made; a payment which the police found to be considerably high.
Mars’s ownership of Alpi was identified through a chain of intermediaries to two firms managed by the Chinese regime — China Railway Rolling Stock Corp. (CRRC), the largest supplier of rail transit equipment in the world, and an investment company that is controlled by the Wuxi municipal government. This led the Italian police to conclude that Mars was a shell company set up by the Chinese regime to enable the takeover of Alpi.
“This was clearly mainly a predatory investment in technology… and this type of investment in this sector is forbidden by Italian law,” Guardia di Finanza Col. Stefano Commentucci, who conducted the investigation, said to WSJ.
The appointment of a new management that consisted of three Chinese executives and three Italians speeded up the push to move production to an advanced site in Wuxi. The six executives are alleged to have infringed Italian laws on the export of military equipment.
An inquiry as to whether the Italian government should have been informed of the sale has been opened up along with an investigation to determine if Alpi already transferred the technology and commenced production in China.
However, Alpi refuted claims stating that it had breached laws pertaining to the handover of sensitive technology and information out of the country. The company also maintained that the sale of its stake was straightforward and at its actual value.
Aiming for key military drone tech
Considering the fact that China is the world’s largest drone exporter and a major producer of armed and reconnaissance drones, the intention behind the takeover of Alpi remains unclear.
Douglas Barrie, senior fellow for military aerospace at the International Institute for Strategic Studies in London believes that China was likely less interested in the drone aircraft itself than a specific element, such as its night-vision sensor or its data-link technology. He accused Beijing of “vacuuming up companies.”
Three sources involved in the case revealed to SCMP that the Italian government is reportedly preparing to send a formal notice to all parties involved in the case, seeking clarifications on the issue. The Italian government has the option to impose penalties and invalidate the deal. It also has special “anti-takeover powers” aimed to prevent takeover of national assets by non-EU groups.