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Pirelli Gets China As New Owner But Communist Driver Carries Big Risk
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ChinaChem has agreed to buy a stake in Italian tire maker Pirelli and launch a joint bid for the remainder in a $7.7 billion deal that will put 140 years of Italian tradition and research and development at the service of the huge Chinese market and could change the global competitive landscape.

Pirelli was the number five in the world market, behind Japan’s Bridgestone, Michelin of France, Goodyear of the United States and Sumitomo, also of Japan. Pirelli and Germany’s Conti were adrift and seeking niches for their survival through targeted acquisitions. Pirelli is the supplier to the Formula One races.


On paper, the deal will generate more than $2 billion in cash for Pirelli main holding Camfin and its biggest owner Marco Trochetti Provera.

Provera and his management team will still run Pirelli but the new paymaster will be Jianxin Ren, the head of ChinaChem. He reports to China’s State-owned Asset Supervision and Administration Commission, headed by Zhang Yi who sits on the central committee of the communist party.


The consequences for jobs in Italy are as yet unclear but it seems unlikely that Italian production jobs can be competitive against lower-wages in Asian countries, including China.

But that was also the case before the deal was announced.

A tie-up with the Chinese will strengthen Pirelli’s position in Asia and could allow other Chinese firms to produce a cheaper tire with Pirelli technology.



Ren Jianxin, Chairman of ChemChina (L) listens to a speaker with President and Chief Executive Officer Jean-Pascal Tricoire (R) of French group Schneider Electric on June 16, 2010 in Paris at a symposium. (ERIC PIERMONT/AFP/Getty Images)

The Chinese communist party, as the Italian family owners at Pirelli – or the French family owners at Michelin or Peugeot Citroen – have a longer term strategy than just the next quarterly result that can give stability to a capital intensive industrial group.

Jianxin Ren is an astute businessman who built an empire out of hardly anything through a spate of acquisitions. Chinese companies are buying up stakes and companies all over the world, like Dongfeng was involved in the rescue of Peugeot Citroen with the French state.

But is it a good thing that the Chinese Communist Party is buying up assets in Europe and the United States, just like it scours Africa for resources?

In a way, China is amassing huge currency reserves because the workers in state-owned enterprises work for low wages – be it rising – and Chinese factories now make almost all the components of western consumer goods. This has led to a shift of jobs from the United States and Europe to China and neighboring countries, as well as a shift in financial assets to China, which controls the exchange rate of its currency.

China is investing this money abroad – either through local billionaires who have been able to build up fortunes under the eyes of local party and military leaders, or via state-owned enterprises.

This recycling of money then gives the Chinese more control over the companies in the West, including about how they source and sell their products, and also gives China access to intellectual property rights.

For many a struggling company or hard-up capitalistic family – from industry to wines and real estate – the lure of a dollar or euro paycheck from China may be irresistible.

But the bigger picture is not in the interest of Europe or the United States.

If the West wants to avoid being relegated to featuring scantily clad on the Pirelli calendar, it will have to re-asses its own capitalistic system.

After all, why barking against state ownership if it involves French, Greek or Italian firms when the alternative is ownership by China or Arab sovereign funds?

If Europe and the United States want to be serious about their own industrial future they should find a way to combine strategic state ownership with the freedom that allows entrepreneurs to create.

If not, the old continent may become an area where a small rich elite is surrounded by masses of poor and unemployed people that can hardly afford second-hand Made In China products.

Who said Communism was dead and Capitalism was the future? The original premises of communism – sharing of ownership, needs-based production, equality and solidarity – may have died in the gulags of Russia and the forced labor camps of China and Cambodia, but the Chinese Communist Party is still on the march.

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