Mario Draghi sets the tone in cooling EU-China relations

It was the abortive takeover this year of an obscure Italian company with just over 50 employees that illustrated how one of China’s greatest diplomatic successes in Europe had collapsed.

In 2019, Rome stunned its American and European allies when Italy’s then-populist coalition government became the first G7 member to join China’s Belt and Road Initiative. Signed during a state visit by Chinese President Xi Jinping, the agreement has propelled Italy to the forefront of Beijing’s battle for global power and influence.

But then, two years later, the new Italian Prime Minister Mario Draghi quietly signed a decree symbolically ending the Italian court of China and containing Beijing’s beachhead in Western Europe.

The last Italian government had already started to calm down on Chinese investments amid strong American pressure. Nonetheless, Draghi’s decision marked a decisive Italian turn towards a foreign policy which he described as “strongly pro-European and Atlanticist, in line with Italy’s historical roots”.

It also foreshadowed a broader EU overhaul of Chinese relations which more recently led the European Parliament to freeze its pending trade deal with Beijing.

“To give the impression that Italy is aligned with the United States, sometimes you have to do little things to prove it,” said Michele Geraci, a Chinese expert who, as undersecretary for economic development, said was one of the architects of the Belt and Road of Italy. agreement with Beijing.

It was “a political statement to show that we are concerned about predatory acquisitions and that we are aligned with our American friends,” Geraci added. Italy’s participation in the Chinese BRI remains technically in effect, but has been virtually meaningless and no major deals have been reached.

The Sino-Italian outcome began in December, two months before Draghi was appointed prime minister. Shenzhen Investment Holdings, a partially state-owned Chinese company, has reached an agreement to buy a 70% stake in LPE, a private Milan-based company that manufactures semiconductor equipment.

But in March, with the Draghi government now in place, the decision to authorize the buyout routinely landed on the desk of Italy’s new Minister of Economic Development, Giancarlo Giorgetti.

A veteran lawmaker of the right-wing League party, Giorgetti has proposed invoking Italy’s so-called Golden Power laws to block foreign takeovers. Draghi signed the decree blocking the sale of LPE at a cabinet meeting on March 31, citing a semiconductor shortage, which made LPE a “strategic sector”.

LPE, which produces components for power electronics applications which are also used “in [the] military domain, ”as the decree described it, declined to comment. Shenzhen Invenland Holdings said it will continue to cooperate with LPE in some areas.

Draghi’s decision was a turning point for Italy and, according to Italian diplomats, possibly for the EU as well.

Only a few years ago, Italian politicians got excited about how Chinese money would help the struggling economy. Italy was the third European recipient of Chinese investments between 2000 and 2019, according to Rhodium Group, receiving a total of 15.9 billion euros against 50 billion euros in the United Kingdom, 22.7 billion euros in Germany and 14.4 billion euros in France.

In 2020, more than 400 Chinese groups also held stakes in 760 Italian companies in “highly profitable or strategic sectors”, according to the Italian parliamentary committee on national security, Copasir.

But today, in part because the pandemic has left many Italian companies vulnerable, Draghi’s government is taking a less lenient approach to strategic foreign investment than previous administrations and is not shying away from exercising its rules. gold to restrict them.

Last month, bolstered by € 205 billion in EU stimulus funds, Italy coordinated with France to undermine the sale of Italian truck maker Iveco to Chinese group FAW. This week, although Rome conditionally authorized a 5G infrastructure supply contract between Vodafone Italy and Chinese Huawei, it came with strict security conditions.

“The shift to China is a thing of the past,” said Edoardo Rixi, an MP for the League. “This political current barely exists today.”

Not everyone thinks a colder relationship with Beijing is in the interests of Italy or Europe.

Speaking this week, former Prime Minister Romano Prodi said: “Until a few months ago. . . the situation [between China and the EU] was more relaxed, but now the deal has been frozen. Prodi added that given the mutually strained relationship, “both sides need to change their attitude. . . for the moment, it is formally impossible to do anything ”.

Geraci is also concerned that the Draghi government’s shift to China could have economic repercussions for Italian companies in Beijing.

“Officially, the market for Italian products in China is 13 billion euros per year, but in fact it is three times that size if you count the products made in Italy which are then bought by China via third country. It’s an extremely important market for us.

How relationships might be recalibrated, however, remains an open question.

Lia Quartapelle, member of the Italian parliamentary foreign affairs committee for the center-left Democratic Party, said the previous pivot to China was an aberration in Italian foreign policy that opened a “geostrategic gash” at the heart of the country. ‘Europe.

Now, however, “Draghi’s caliber enables us not only to reinforce Western values, but to be the engine of recovery in the post-pandemic era,” she added.

Furthermore, with Germany absorbed in the elections this year and France next year, Draghi is an important European player whose firm Atlanticism could influence the EU’s broader policy towards China.

“Italy’s role in maintaining the right rudder will soon become even more crucial,” said Emma Bonino, former Italian foreign minister.

“Of course, dealing with China’s policy remains complicated; we cannot pretend that the country does not exist, ”she added. “We can trade with China as with the rest of the world, but we have to be clear about the differences and the rifts between us and them.”

Additional reporting by Qianer Liu in Shenzhen

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