Sun, Apr 23, 2023 page8

• ‘De-risking’ complex for Europe

  • By Andrew Hammond
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  European policy toward China is increasingly being framed by senior politicians as one of “de-risking” rather than “decoupling.”

  However, there is little conceptual clarity on what this means, with the increasing possibility of EU policy failure, rather than success.

  The debate over de-risking versus decoupling has been turbocharged by recent interventions by key political leaders such as European Commission President Ursula von der Leyen, who spoke on this issue again on Tuesday in Brussels.

  In advance of her recent trip to Beijing, she rightly reiterated that “it is neither viable, nor in Europe’s interest, to decouple from China” in a manner that she has sometimes characterized as being the policy of the US.

  Von der Leyen instead advocates a more modest form of cautious engagement with Beijing, which she calls “de-risking.”

  While this might be a politically viable distinction, it still lacks conceptual clarity in a debate that is likely to have enormous implications for Europe.

  Firstly, there is significant disagreement within the EU on these issues, so it would not be straightforward to secure policy consensus.

  De-risking looks less extensive to policymakers in Germany, given that nation’s deep economic ties with China, than it would for key eastern European nations such as Poland and Lithuania — which allowed Taiwan to open a representative office in the capital, Vilnius, in 2021.

  Germany is by far China’s biggest trading partner in the EU, with the nation’s firms also holding sizeable investments in the country.

  In the first two months of this year, Germany accounted for 27 percent of all trade between the EU and China.

  Meanwhile, Poland tends to be more skeptical about ties with Beijing, and has long been one of the EU states most reluctant for Brussels to ratify the stalled Comprehensive Agreement on Investment.

  Poland also reacted strongly to recent comments by French President Emmanuel Macron that the EU should reduce its dependence on the US and aim to become a “third pole” in world affairs alongside Washington and Beijing.

  Polish President Andrzej Duda and Polish Prime Minister Mateusz Morawiecki have stressed in recent days that the alliance with the US is essential for European security, cautioning against ideas of Macron-style “strategic autonomy” for the continent.

  A second challenge is that Europe is trying to make policy in a fast-changing geopolitical landscape. This dynamic dimension of de-risking makes it a moving — and harder — target to hit.

  The amount of de-risking Europe collectively feels it needs to take might change significantly over time, depending on China’s posture.

  If Beijing is perceived to behave “badly” in the coming months or years, for example by invading Taiwan, there might be much more consensus in Europe toward more comprehensive de-risking, which could see political rhetoric move toward decoupling.

  Conversely, if Beijing is perceived to behave “well,” possibly playing a key role in ending the war in Ukraine by encouraging Russia to the negotiating table, the policy debate might become more nuanced.

  Within this policy vortex, there are some clues to what de-risking could look like based upon what Von der Leyen says is the need for “a clear-eyed picture of what the risks are.”

  This builds from tools such as the EU’s new Critical Raw Materials Act, which seeks to reduce EU reliance on Chinese refining capacities.

  The new framework is likely to become clearer when the EU introduces a new economic security strategy later this year, to address what Von der Leyen has called a still “unbalanced” economic relationship.

  This would include reducing dependency and diversifying supply chains away from Beijing, especially in areas in which the EU needs to build its green and digital economy.

  Key elements of the new framework are likely to comprise what Von der Leyen says is need for “bolder and faster use” of new economic tools against China.

  This would include the screening of foreign subsidies and a new policy to help the bloc fight attempts of economic coercion by third countries, as recently agreed by the European Parliament and member states.

  The EU is also planning to roll out foreign subsidies regulations, giving it extra muscle to fight distorting subsidies that firms receive in third countries. It would give Brussels greater power to prevent state-subsidized companies from China — and other nations — producing in Europe.

  Another tool that Europe looks set to develop is what Von der Leyden calls “a targeted instrument on outbound investment.”

  This would be for sensitive technologies that can lead to the development of military capabilities that pose national security risks.

  Beyond that, Von der Leyen said the bloc needs to “define its future relationship with China” in sensitive high-tech areas.

  These include microelectronics, quantum computing, robotics, artificial intelligence and biotech.

  However, a key question is how much this emerging tool kit can deliver on Von der Leyen’s de-risking goal.

  Seeking to differentiate the EU position from US-style decoupling could be clever positioning, but implementation might turn out to be very difficult, politically and economically.

  Andrew Hammond is an associate at the London School of Economics’ think tank LSE IDEAS.
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