China quietly took control of Italian military drone maker, WSJ says

People’s Liberation Army honor guard soldiers perform the flag-raising ceremony in Tiananmen Square on New Year’s Day January 1, 2021 in Beijing, China.

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Two Chinese state-owned companies took control of an Italian manufacturer of military drones more than three years ago via an offshore company – without the knowledge of Italian and European authorities, the Wall Street Journal reported on Monday.

Offshore company Mars (HK) Information Technology has started the process of transferring technical and intellectual property from Alpi to a new production site in China, according to the report.

Mars bought a 75% stake in Italian drone maker Alpi Aviation in July 2018 for 4 million euros, or $ 4.6 million, the Journal reported. Mars also invested an additional 1.5 million euros in Alpi – an amount which Italian police described as a significant overpayment, according to the report.

Italian authorities are investigating the 2018 deal, including whether Alpi should have informed the Italian government of the sale of the stake, as well as whether Alpi transferred the technology and started production in China, according to the report.

Police concluded that Mars was a shell company linked to two Chinese state-controlled companies, according to the Journal.

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March was recorded in Hong Kong just two months before the Alpi deal, according to the report. He added that police traced Mars ownership of Alpi to China Railway Rolling Stock Corp or CRRC – a large Chinese state-owned railway company – and an investment group controlled by the Wuxi municipal government.

Wuxi is a city close to Shanghai. A Reuters report in September identified the investment group as China Corporate United Investment Holding.

Alpi had supplied drones used by the Italian Air Force in Afghanistan, according to the report.

At the time of publication, Alpi and CRRC had not responded to CNBC’s request for comment on the report. Mars and the Wuxi investment group could not be reached for comment.

The Journal, citing a statement by Alpi, said the Italian drone maker has denied breaking laws on the transfer of strategic information and technology out of Italy. The company also said its sale of stake was transparent and carried out at true value.

European companies are generally required to report relevant foreign takeovers to authorities, for example when transactions involve security, according to the Journal report.

The Italian government has the right to veto takeovers by non-EU buyers in sectors deemed strategic such as defense and communications, according to the report.

To learn more about the Alpi Aviation investigation, read the full article on the Wall Street Journal.