China strengthens its military drones while shopping in Italy. The authorities should be vigilant, in the face of an international attention from Europe and the US on these activities. But they didn’t. They knew nothing about it. Now the Italian government has opened an investigation. This is what the Wall Street Journal reports: the American newspaper discovered that in 2018, a Chinese state-controlled company bought an Italian manufacturer of military drones, Alpi Aviation. Technology used by the Italian army in Afghanistan.
As expected, China immediately started transferring the company’s know-how and technology to the motherland. The Italian and European authorities were unaware of the move, confirming how China has become very good at bypassing controls in Europe, to acquire sensitive technology. The newspaper reports that Italian authorities are investigating the 2018 acquisition of Alpi Aviation by a Hong Kong-registered company that they suspect is a front for the Chinese state. The acquisition fits into an established script: state-owned Chinese companies using seemingly private shell companies as a front to acquire companies with specific technologies that they then relocate to new plants in China.
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Precisely for this reason, Europe is tightening investment controls following a wave of Chinese acquisitions. In 2018, the European Union established a new framework for screening these operations. But the ultimate responsibility lies with the national governments, which apparently failed in this case. The exact timing of the acquisition is not clear, but China may have taken advantage of the political transition period in March 2018 the Gentiloni government resigned and the Conte government took over in June. In Europe, companies themselves are generally obliged to report relevant foreign acquisitions to authorities, in particular. The authorities rely on this self-report, but it is a bit of a weak link in the screening system.
Italian authorities tell the Wall Street Journal that they stumbled upon Alpi’s ties to China during a separate investigation. The company, based in the Italian city of Pordenone, produces light aircraft and mini drones called Strix. The drones, which have been used by the Italian Air Force in Afghanistan, can be carried in a backpack, quickly deployed by a single operator, and provide surveillance even at night, according to the company’s website.
Alpi had appeared on the Guardia di Finanza radar twice since 2009, amid suspicions that he had sold aircraft and drone parts to Iran in violation of an embargo. Authorities were also investigating his alleged illegal use of an airfield. Alpi denied any wrongdoing, stating that he had not sold any technology to Iran that could be used for military purposes. The financial police said two searches in Alpi’s offices this year revealed the connection with China. In July 2018, they say, a company called Mars (HK) Information Technology Co. Ltd., which had registered in Hong Kong two months earlier, bought a 75% stake in Alpi for 4 million euros. $ 6 million, and then invested another 1.5 million euros in the company. The financial police said they found evidence that Alpi was negotiating with potential buyers before the sale was completed for the transfer of Alpi’s know-how and technology to China. The transfer of military technology and production out of the country requires the permission of the Italian government. But Alpi sent a military drone to China in 2019 and left it there for more than a year, falsely describing it as a “radio-controlled aircraft model” destined for an import trade show in Shanghai that lasted five days.
Prosecutors argue that the six executives violated Italian laws on the export of military equipment. The Italian government has also opened an investigation to determine whether it should have been notified of the sale. Earlier this year, the Italian government used its veto powers to stop the sale of a 70% stake in a Milan-based semiconductor manufacturer, LPE SpA, to a Chinese company.
Why Alpi was acquired remains unclear. China is a leading manufacturer of reconnaissance and armed drones and is the largest exporter of drones in the world. According to the paper’s reconstruction, China was likely less interested in the drone aircraft itself than in a specific element, such as its night vision sensor or data link technology.
“A very serious fact, which confirms China’s ability to circumvent controls and thus strip us of strategic technology”, Umberto Bertelè, professor emeritus of the Milan Polytechnic, expert in Italy-China technological relations, comments to ItalianTech. “It is little consolation that the United States is also having problems preventing its technology companies from doing business with China, most recently in the strategic chip sector, despite stringent government regulations, circumvented by various tricks,” he continues.
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