Are you de-risking your reliance on China?

The European Union's (EU) approach towards China has undergone a significant shift, focusing on "de-risking" from the economic reliance on China. Daniel Goodson FIRP explores why the EU is considering reducing its dependence on China.

Previously, EU countries sought to strengthen investment ties with China, but in recent geopolitical developments, China's refusal to condemn Russia's actions in Ukraine, and concerns over human rights violations have prompted a re-evaluation.

While EU-China economic ties remain strong, the pandemic and conflicts have exposed the risks of depending heavily on China for critical supplies. The EU is particularly vulnerable in areas crucial to its green transition, such as rare earth elements, lithium, and solar panels, where China holds a dominant position.

The de-risking strategy aims to diversify the EU's supply chains and reduce its dependence on China, especially in strategically important sectors. The focus is on boosting resilience and hindering hostile countries' access to sensitive technologies.

A complete decoupling from China is deemed both impractical and undesirable due to its severe economic consequences. Instead, the EU plans to strengthen economic security measures, such as export controls and investment screening, and foster cooperation with like-minded democracies to diversify supply chains. However, this strategy carries risks of potential retaliatory measures from China.

Despite this, EU-China trade is expected to remain robust, with European firms lobbying to maintain trade flows. Nevertheless, the EU will engage with China on climate change on a transactional basis, as China prioritises security and ideology over economic goals.

Additionally, EU-US alignment on security concerns related to China will likely deepen, potentially increasing the risk of Chinese retaliation.

Overall, the EU's de-risking strategy reflects its growing concerns about its economic security and will shape future EU-China relations.