Four years after then Italian Prime Minister Paolo Gentiloni joined his French and German counterparts in advocating for the now operational EU-wide investment screening mechanism, Mario Draghi’s government is quietly putting Italy back in the front seat of intra-EU China policy coordination.
First, the Italian government reportedly considered views from the European Commission, Sweden and the Netherlands when, on March 31, it vetoed the acquisition of Milan-based semiconductor firm LPE. The prospective acquirer was Shenzhen Investment Holdings, a state-owned Chinese investor, and the takeover was blocked on national security grounds.
Later came the news, confirmed by Bloomberg and citing unnamed government officials, that the Italian and French economy ministers had acted in coordination to prevent the sale of a unit of Iveco SPA, a crown jewel in transport vehicle manufacturing, to China’s FAW Group. On Draghi’s behalf, Italy’s Economic Development Minister Giancarlo Giorgetti persuaded the companies to drop the talks, a decision announced by Iveco’s parent company CNH Industrial on April 17. His French counterpart Bruno Le Maire welcomed the news on Twitter, stressing Europe’s “industrial sovereignty”.
MERICS take: A little over two months since Draghi took office, the contours of his China policy are already taking shape. That the former European Central Bank chief only briefly touched on China in his inauguration speech (in the context of regional security tensions in Asia) was rather predictable; the previous coalition government had already distanced itself from the strategic naivety that had characterized Giuseppe Conte’s first cabinet, which had overseen Italy’s formal endorsement of Beijing’s Belt and Road Initiative in 2019.
Given Draghi’s strong pro-European orientation, as well as his traditional pragmatism, it comes as no surprise that his approach to bilateral economic relations with China prioritizes careful consideration of national and European interests, against which commercial opportunities must be weighed. Amid a devastating pandemic-induced economic crisis, Rome has acted swiftly to protect strategic industrial assets from foreign takeovers – apparently also by making use of the novel cooperation mechanism under the EU investment screening Regulation for the LPE deal.
Iveco’s case is even more interesting. The existing instruments do not apply to this sector, so the government instead used political channels to discourage the deal. This was done in coordination with Paris and based on an industrial policy calculus, as Italy prepares to receive about 200 billion EUR of European recovery funds that could be used to support crisis-hit industries.
What to watch: Draghi’s China policy will likely continue to be marked by pragmatism and an emphasis on European coordination, as well as coordination with allies and partners beyond Europe. It is within such a framework that economic cooperation with China will be pursued. We should expect Italy’s new government to welcome concrete opportunities – FAW has just launched a joint venture to design and manufacture new energy vehicles in Emilia Romagna – while keeping security and strategic risks in check. Rome is now mulling over expanding its investment screening powers to cover the automotive and steel sectors, both strategic for Italy’s economy. As for political relations with China, Draghi is yet to fully show his hand. The ongoing debate in the parliament’s lower house about Italy’s stance on human rights abuses in Xinjiang will be an important test.