Italy has stripped China’s Sinochem of its influence as the largest shareholder in Pirelli, removing its right to appoint the CEO or set the tyremaker’s strategy in response to worries about interference by the Chinese state.

Italian Prime Minister Giorgia Meloni’s government has invoked national security concerns about the potential for misuse of Pirelli’s chip technology, as well as Chinese Communist party interference, to justify the new restrictions on Sinochem, which owns a 37 per cent stake in the business.

The details of the restrictions come after an unprecedented announcement from the Italian government on Friday night that it would impose a “network of measures to safeguard Pirelli’s independence”.

The government’s order, which has been seen by the Financial Times, gives Camfin — the private investment vehicle of Pirelli chief executive Marco Tronchetti Provera, which owns 14 per cent of the company — the indefinite right to appoint the chief executive.

Sinochem, which owns its stake through China National Rubber Company, will also be barred from involvement in decisions about Pirelli’s “mergers and acquisitions, sales, spin-offs or listings of financial instruments”, according to the order.

Under a previous shareholder agreement between Sinochem and Tronchetti Provera, who has run the company since 1992, the CEO was entitled to pick his successor.

But Sinochem had proposed a new agreement eliminating that provision, amid rising tensions between Tronchetti Provera and his Chinese partners. This updated agreement was presented to the Italian government in March, triggering a review.

Italy’s sweeping “golden power” over investments in strategic national assets allows it to veto takeovers, force stake sales or impose other restrictions on foreign investors in certain assets. At the time of Sinochem’s Pirelli investment in 2015, these powers were not so expansive and the deal was not subject to a national security review.

On Friday, the government said it wanted to safeguard Pirelli’s independence and management, amid allegations that the Chinese Communist party was attempting to exert tighter control over its operations.

Sinochem has so far declined to comment on the measures, with lawyers saying Beijing is still reviewing the decision and its implications. Pirelli declined to comment but is expected to publish a statement later on Sunday.

A senior Italian official familiar with the case described Rome’s intervention as “minimal”, in light of the possibility that the government could have ordered Sinochem to reduce its shareholding in Pirelli or even sell out completely.

“I think they will be relieved to learn that their shares haven’t been touched,” the official said, noting that Sinochem also retains its representation on Pirelli’s board. 

However, Rome has also mandated that Pirelli appoint another Italian citizen, vetted by the Italian government, to the board to ensure its rulings are followed. 

It has also told Pirelli to refuse any requests from China’s state-owned Assets Supervision and Administration Commission of the State Council, including for information sharing. The two companies will also have to keep their treasury and cash pooling functions separate.

Sinochem has been ordered to refrain from any intervention that might suggest Pirelli’s decisions are “a consequence of impositions” from Beijing.

Michele Geraci, who as under-secretary in Italy’s ministry of economic development pushed for Rome to join Beijing’s Belt & Road Initiative, warned that the intervention in Pirelli would “irritate” Beijing, and increase risks for Italian companies operating in China.

“[China] will show discontent and disapproval in words, but they are smart and do not retaliate immediately, in a clear, visible way,” Geraci said. “But when an Italian company has problems in China, it will pay the price for the Italian government’s decision.”

He added that the grounds for intervention seemed unconvincing.

“This golden power thing is driven by the need of Meloni and [finance minister Giancarlo] Giorgetti to be seen as anti-China, pro-US and pro-Nato,” he said. “This is not a national security or strategic asset. If you track a lorry driver — where he goes, how fast he goes and if he stops to go to the toilet, it’s not a state secret.”

He also said it would send a damaging signal to other foreign investors. “The rest of the world will see an Italian government that plays dice with the investment rules,” he said. 

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