Mario Draghi set a tone in calming EU-China relations

It was this year’s aborted takeover of a little-known Italian company with just over 50 employees that illustrated the unraveling of one of China’s biggest diplomatic successes in Europe.

In 2019, Rome stunned its allies in the United States and Europe when Italy’s then-populist coalition government became the first G7 member to sign off on China’s Belt and Road Initiative. The agreement was signed during an official visit by Chinese President Xi Jinping, and pushed Italy to the front line in Beijing’s battle for global power and influence.

But two years later, newly appointed Italian Prime Minister Mario Draghi quietly signed a decree that symbolically ended Italy’s courtship of China and secured Beijing’s foothold in Western Europe.

The recent Italian government had already begun to cool down Chinese investment amid heavy US pressure. However, Draghi’s move represented a decisive Italian shift toward a foreign policy that he described as “strongly pro-European and Atlantic, in line with Italy’s historical anchors”.

It also heralded the EU’s broader rethinking of Chinese relations, which recently led to the European Parliament Freeze pending trade deal with Beijing.

“To make it look like Italy aligns with the United States, sometimes you need to do little things to prove it,” said Michele Gerassi, the China expert, who, as undersecretary for economic development, was one of the architects of Italy’s Belt and Road Initiative. agreement with Beijing.

Gerassi added that it was “a political statement to show our concern about predatory takeovers, and that we are allied with our American friends.” Italy’s participation in China’s Belt and Road Initiative is still technically valid but has become essentially meaningless and no major deals have been made.

The Sino-Italian breakup began in December, two months before Draghi was appointed prime minister. Shenzhen Investment Holdings, a partly Chinese state-owned company, has struck a deal to buy a 70 percent stake in LPE, a private Milan-based company that makes semiconductor equipment.

But in March, with the Draghi government now in power, the decision to grant permission for the takeover, as a routine measure, arrived at the office of Italy’s new economic development minister, Giancarlo Giorgetti.

Giorgetti, a veteran lawmaker from the right-wing League, suggested invoking Italy’s so-called Golden Power laws to prevent foreign takeovers. Dragy fell Decree prohibiting the sale of LPE At a cabinet meeting on March 31, he noted the shortage of semiconductors, making LPE part of a “strategic sector”.

LPE, which produces components for power electronics applications that are also used “in [the] Military field,” as the decree described it, declined to comment. Shenzhen Infinland Holdings said It will continue to cooperate with LPE in certain areas.

Draghi’s decision was a turning point for Italy, Italian diplomats say, and possibly also for the European Union.

Just a few years ago, Italian politicians were excited about how Chinese money would help the ailing economy. Italy was the third largest beneficiary in Europe of Chinese investment between 2000 and 2019, according to the 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.

As of 2020, more than 400 Chinese groups also held stakes in 760 Italian companies across “highly profitable or strategic sectors,” according to Italy’s parliamentary committee on national security, Copasir.

But today, in part because the pandemic has left many Italian companies vulnerable, the Draghi government is taking a less permissive approach to strategic foreign investment than previous administrations and is not holding back from practicing its golden rules to limit them.

Last month, backed by €205 billion in recovery funds from the European Union, Italy coordinated with France to undermine the sale of Italian truck maker Iveco for the Chinese FAW Group. This week, although Rome conditionally allowed a 5G infrastructure supply contract between Vodafone Italy and Huawei ChinaIt came under strict security conditions.

“The shift towards China is a thing of the past,” said Eduardo Rexi, a member of parliament for the association. “This political current today hardly exists.”

Not everyone thinks that cooler relations with Beijing are in the interest of Italy or Europe.

Speaking this week, the former Prime Minister Romano Prodi said: “Until a few months ago . . . the situation [between China and the EU] He was more relaxed, but now the agreement has been frozen.” Brody added that given the mutually strained relations, “Both sides should change their stance. . . Now it’s officially impossible to do anything.”

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

Officially, the Italian goods market in China is €13 billion annually, but in fact it is three times that size when you factor in products made in Italy that China then buys through third countries. It’s a very important market for us.”

But how relationships can be reset remains an open question.

Lea Quartabile, a member of the Italian parliament’s foreign affairs committee for the centre-left Democratic Party, said the previous axis toward China was a deviation from Italian foreign policy that opened a “geostrategic fissure” in the heart of Europe.

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

Moreover, with Germany accommodating elections this year and France next year, Draghi is an important European player whose strong Atlantic could influence broader EU policy toward China.

“Italy’s role in keeping the rudders straight will soon become more important,” said Emma Bonino, a former Italian foreign minister.

To be sure, dealing with China’s policy remains complex; “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 must be clear about the differences and differences between us and them.”

Additional reporting by Qianer Liu in Shenzhen

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