Italian authorities have acted following a potential breach of the ‘Golden Power’ law. The breach was in the form of a Chinese company purchasing an Italian military drone manufacturer, via a Hong Kong company to avoid scrutiny but with the aim of production being transferred to China. Italy is concerned about the potential for China to undermine its national security by gaining access to critical parts of its military production line, says GlobalData, a leading data and analytics company.

The ‘Golden Power’ law aims to protect stakes in defense companies and strategic assets from being sold outside Italy unless they receive specific permission from the government. In 2021, the ‘Golden Power’ rule was leveraged to stop the takeover of a semiconductor firm called Lpe, as well as to prevent Italian companies with Chinese links from being involved in the development of 5G networks.

According to GlobalData intelligence, mergers and acquisitions in Italy have increased since 2012, with a number of deals going through each year. The country has vetoed only 3 total acquisitions in this period but this ongoing intervention signals that scrutiny is likely to increase.

William Davies, Associate Analyst at GlobalData comments: “Italy has long been wary of Chinese investment in critical infrastructure including 5G, with some concerned that network equipment used for 5G may be used as a backdoor for covert surveillance. Italy’s parliamentary intelligence oversight committee (COPASIR) has increasingly attempted to pressure the government into increasing oversight of acquisitions. This committee cites the example of the US Committee on Foreign Relations (CFIUS) which in recent years has focused its attentions on Chinese investments, and saw its powers expanded in 2018 to assess a broader scope of regulations and increasing their powers to block acquisitions. COPASIR is likely to push to increase their power in the same way.”

Davies adds: “Italy has been a core beneficiary of Chinese Foreign Direct Investment, with €16 billion ($18.2 billion) being invested over the last 10 years. This creates a complex challenge for Italy in balancing its economic interests with its security interests, and the state will not want to risk the withdrawal of Chinese investment even when defending its own security interests.”