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EU's ignorance of China buying up Italian military drone maker highlights blind spots: WSJ

Self-reporting leaves loopholes wide open

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Chinese SW-6 drone. (Chinese Military Review photo)

Chinese SW-6 drone. (Chinese Military Review photo)

TAIPEI (Taiwan News) — The case of a Chinese state-directed company buying up an Italian military drone maker in 2018 reveals blind spots in the EU’s investment screening processes around strategic tech, according to a Wall Street Journal (WSJ) report.

The European company’s lethal gadgets, which were used by Italian forces in Afghanistan, were later reverse-engineered by the Chinese purchaser, giving the People's Liberation Army (PLA) new capabilities. The portable drones can be carried over the shoulder and can be launched into flight by a single operator, per sources cited by the WSJ.

Neither Rome nor Brussels were aware of the procurement at the time, yet the Italian government is looking into the acquisition ex-post.

Analysts cited by WSJ say the Italian scandal is part of a recurring heist of strategic technology whereby Chinese state companies conceal themselves behind front companies that present themselves as purely private-sector firms.

The takeover fits a pattern, analysts said, of Chinese state firms using ostensibly private shell companies as fronts to snap up firms with specific technologies that they then shift to new facilities in China.

European regulators typically rely on companies to self-report acquisition deals if they threaten security. However, this approach may be letting too many dangerous deals slip through the regulatory net, analysts believe.

Italian police only picked up the China lead after investigating the Italian company in question, Alpi, for another suspicious deal — a sale of aircraft components to Iran in violation of sanctions.

Italian authorities identified Hong-Kong based Mars Information Technology as the buyer and then traced the complex web of ownership to find a Chinese state-owned railway company further upstream from the shell. Allegedly, the Chinese company overpaid for the technology.

“This was clearly mainly a predatory investment in technology... and this type of investment in this sector is forbidden by Italian law,” said the chief investigator.

Alpi claimed innocence, saying it had not broken any laws. The Chinese companies stayed silent when sought out for comment.