Italy's FDI screening "Golden Power" reflects increasing security awareness

On March 23, 2021, Italian Prime Minister Mario Draghi enforced the Golden Powers regulation to block the acquisition of 70% of Milan-based LPE S.p.A — a semiconductor company — by Chinese Shenzhen Investment Holdings. The news attracted significant national and international attention as the first time the Italian government had applied these special powers to block the acquisition of a domestic company.

Since a new EU framework on investment screening became operational in October 2020, many member states have been equipping their legislative bodies with new regulations to support risk assessment on inbound foreign investments. Italy was no exception — with the issuing of the Liquidity Decree, the intervention scope of its special powers was extended. These powers reflect a growing awareness of the interrelatedness of economic and national security, and of the strategic importance of key sectors.

Special Powers to Block Risky FDI

In Italy, the Golden Power regulation is at the cornerstone of the national investment screening mechanism. In essence, it provides special powers for the Italian government to block or limit foreign direct investments and corporate transactions involving national strategic assets. Brought forward in 2012, the law enabled the Italian state to exercise this authority when detecting threats from foreign direct investments in specific sectors — originally defence, national security, energy, transport, and communications.

In 2020, the Golden Power's application scope was enlarged and adjusted to align with the EU foreign investment screening mechanism, which became fully operational on October 11, 2020, providing member states with a broader regulatory framework at Union level. Investment screening had become a highly debated topic in the EU following the supply chain shock caused by the Covid-19 pandemic, which left many European companies in a dire economic situation and vulnerable to external investment — raising concerns over the potential loss of member states' strategic assets.

The Case of LPE S.p.A and State-Owned Shenzhen Investment Holdings

The Golden Power was primarily conceived to protect the national economy by preventing the expropriation of know-how and critical infrastructure — which can occur when a foreign entity acquires a controlling share in a company operating in sensitive sectors.

A recent example of its application is Prime Minister Draghi's blocking of a 70% acquisition of Milan-based LPE S.p.A by Chinese Shenzhen Investment Holdings. LPE operates in semiconductor equipment production — considered a heated area of global competition given recent industry shortages. Draghi deemed the proposed takeover a "threat for Made in Italy" and blocked the deal.

A Closer Look at the Transaction

Chinese Shenzhen Investment Holdings is part of a large state-owned enterprise conglomerate called Shum Yip Group Co., Ltd., which is 100% controlled by the Chinese state through the Shenzhen Municipal State-owned Assets Supervision and Administration Commission (SASAC).

LPE S.p.A was founded in Milan in 1972 and designs and manufactures epitaxial reactors. With 52 employees it is small in size, but its cutting-edge manufacturing activities make it strategically significant. Notably, LPE was already present in the Chinese market through a wholly foreign-owned enterprise established in 2003, Lopez (Shanghai) International Trade Co., Ltd.

State-owned enterprises do not necessarily follow market supply and demand logic — when investing abroad, they are primarily geared towards resources-seeking activities or know-how absorption in service of broader national goals. In this case, the Chinese company's interests echoed China's national priorities. China has the largest semiconductor market in the world, but currently produces only 16% of the semiconductors it uses domestically. Despite enormous internal demand, the sector remains highly import-dependent. Under the Made in China 2025 strategy, this domestic production share is targeted to reach 70% by 2025.

Levelling the Playing Field on Investment

The application of the Golden Power regulation is crucial in this context. Using Datenna's economic intelligence platforms and FDI radar, a number of Chinese acquisitions in Italy can be identified that — due to either transaction value or the industry of the target — could be regarded as distortive.

The most relevant prior acquisition took place in 2018, when Shanghai's SARI acquired 90% of Milan-based NMS Group. The acquirer is a Chinese market-leading biotech investment company jointly established by the Chinese Academy of Sciences (CAS) and the Shanghai Municipal Government through the Shanghai Advanced Research Institute (SARI-CAS). Notably, the Chinese Negative List on Foreign Investments prohibits foreign investors from establishing or exercising any form of control over medical or research institutes in China — making an acquisition like that of NMS a clear example of an uneven playing field in bilateral investment.

The Golden Power has proven to be an important tool for protecting Italian key industries and technologies. The new EU investment screening framework has increased awareness among member states of the necessity for robust investment screening practices. It is now up to each country's responsible unit to deploy critical expertise when required and apply the powers granted by these tools wisely.