Pirelli’s Italian CEO Seeks to Curb China’s Grip on Tiremaker

Pirelli CEO Marco Tronchetti Provera, who previously arranged the initial Chinese purchase of a large stake in the company, told a closed-door meeting with the Italian government on Tuesday that Rome must take action to block a power grab by Beijing-controlled Sinochem, according to a person familiar with the talks.

Relations between Tronchetti Provera, who has run Pirelli for more than 30 years, and the Chinese conglomerate have broken down in recent months, according to a person familiar with the relationship. Tronchetti Provera told Rome officials that the Chinese company is trying to interfere with Pirelli’s management in ways forbidden by an agreement reached when it bought its stake.

Tronchetti Provera’s meeting with the officials is part of a government review initiated when Sinochem informed Rome that a pact between Pirelli’s shareholders would be renewed.

Sinochem didn’t respond to a request for comment.

The conflict over who controls Pirelli is an example of the rising economic tensions between China and Western countries, where executives and politicians once welcomed Chinese investments but have become increasingly wary. Business and economic relations between the two sides have cooled in recent years as geopolitical tensions have flared, with many European countries increasingly viewing China as a strategic rival as well as an important trading partner. China’s alignment with Russia during the latter’s invasion of Ukraine has further cooled the relationship.

The Italian government has said it would decide in the coming month whether to wield the so-called golden power that allows it to block major decisions at companies considered to be of strategic importance to the country.

Invoking that power would allow Rome to block board appointments or an eventual bid by Sinochem to increase its 37% stake in Pirelli. Tronchetti Provera controls 14% of the company through his investment company.

Italian officials are investigating whether Sinochem in recent months failed to respect the original agreement from 2015 that forbids the Chinese company from trying to influence strategic decisions at Pirelli, according to the person familiar with the discussions.

Also at issue is the composition of Pirelli’s board. A recent agreement between Sinochem and Tronchetti Provera said the Chinese could increase their board representation, but Tronchetti Provera is now pushing to stop that, according to another person familiar with the matter.

Tronchetti Provera and Sinochem renewed their shareholders’ pact in May. But the relationship was already fraying, triggered by tensions over who really controls Pirelli, according to the person familiar with the relationship.

Italy’s relationship with China has been under scrutiny from the U.S. and other Western countries since 2019, when the then-government in Rome signed up to China’s Belt and Road Initiative. The memorandum of understanding was considered an important victory for China and brought angst to many European capitals and Washington, but has had little impact on bilateral investments or trade.

The right-wing government of Prime Minister Giorgia Meloni is considering canceling the memorandum, but there are fears Beijing could retaliate against Italian businesses.

Chinese company ChemChina, which later became a part of Sinochem, bought an initial stake in Pirelli in 2015, when large state-owned Chinese firms were scooping up European companies. In the same period, other Chinese government-controlled entities bought stakes in Italian companies including oil company Eni and carmaker Fiat Chrysler, which has since become part of Stellantis.

European governments have since put up barriers against Chinese investments. The Italian government of Mario Draghi, which preceded the current administration, invoked the golden power several times, including when Chinese firms sought to buy an Italian semiconductor maker and a telecommunications company.

Rome can invoke the golden power only for companies considered strategically important. How that is defined has been greatly expanded in the past few years. While a few years ago there was some question about whether a tiremaker such as Pirelli would qualify, that is no longer considered an issue, according to government officials.

Milan-based Pirelli, founded 150 years ago, is a source of pride for many Italians, one of the country’s internationally famous industrial brands.

In recent years, Pirelli has shifted away from making commodity tires to concentrate on high-end products that have higher margins and can still be produced profitably in higher-cost Western countries such as Italy. The company provides the tires used in Formula One races.

The original agreement between the Chinese and Tronchetti Provera had provisions to maintain at least the appearance of continued Italian control of the company. The corporate headquarters and research and development activities were to stay in Milan, an accord that has been respected. Investors representing 90% of Pirelli’s shares would have to approve any move of the company’s headquarters or the transfer of intellectual property to other companies.