Rocky road out of dependency: How Europe wants to free itself from China’s shackles

In Brussels, the keyword “de-risking” is circulating when it comes to relations with Beijing. But how should the risk in dealing with China be reduced? From supply chains to raw materials – there is no shortage of ideas for legislative initiatives. However, there are still open questions.

EU jargon is not known for its suitability for everyday use. The new keyword “de-risking”, which is now circulating in Brussels when it comes to dealing with China, also seems abstract. Basically, the point is that the Europeans are trying to gradually free themselves from the shackles of economic dependency without immediately daring a complete liberation strike against Beijing. The heads of state and government want to include the term coined by EU Commission President Ursula von der Leyen in their final declaration at the upcoming EU summit at the end of June.

The question of the exact definition is likely to cause explosives at the meeting, since not even Germany and France have been able to agree on a common position so far. While Chancellor Olaf Scholz insists on “smart de-risking”, French President Emmanuel Macron warned that Europe would become a “follower” of the USA in relation to the Taiwan conflict. Meanwhile, the EU institutions are already working flat out on laws that should lead to more independence.

René Repasi, SPD member of the European Parliament, sees the planned EU supply chain law as a lever to reduce risks in trade relations with Beijing. “China is an economic rival for the EU, not least because it gains advantages by circumventing environmental and human rights standards. Forced labor is also becoming a competitive advantage,” says Repasi in an interview with ntv.de. Reports of forced labor camps for the Muslim Uyghur minority in the Chinese province of Xinjiang have been piling up for years. German companies like VW are also investing in plants there.

“Risk management is the Chancellor’s phone number”

The supply chain law is intended to make them take a closer look at the conditions under which their products are manufactured. If a company does not check its supply chains for compliance with environmental or human rights standards, fines are threatened. In contrast to other European countries, Germany already has a supply chain law that has been in effect since the beginning of the year. According to current plans, the EU amendment should go one step further. The European Union wants to make companies with at least 250 employees responsible, Germany only those with 1000 or more employees.

Repasi put a lot of heart and soul into the draft of the directive, which will be voted on June 1st in the European Parliament. However, he encountered resistance from business associations. “They complain that they cannot verify environmental and human rights standards because they cannot trace which components of their products come from China,” says Repasi. Nevertheless, there are companies that support the bill, he says. A corporate culture in which as many European employees as possible are sent to China over a longer period of time to get an idea of ​​the local conditions is crucial. According to Repasi, during short visits there is a risk that Chinese partners will present “model factories”.

The FDP politician Nicola Beer also sees a need for action by German companies when it comes to investments in China. “Medium-sized companies usually practice sensible risk management and build up reserves. If China attacks Taiwan, they could write off their commitments in China. Large companies very often don’t do this,” says the Vice President of the European Parliament to ntv.de. According to the Deutsche Bundesbank, German companies invested 11.5 billion euros in the People’s Republic in 2022 alone, more than ever. In view of such sums, Beer urges more caution. “It’s unacceptable when big companies think that adequate risk management is the chancellor’s phone number,” she says.

So far, no EU member state has been mining rare earths

As the leading deputy, Beer is responsible for a project that is intended to form a basis for “de-risking”: the law on critical raw materials. In mid-March, the Commission presented a corresponding draft, which is now being discussed by parliamentarians. It is related to the aim of promoting the production of green technologies in the domestic market. This will only succeed if Europe becomes less dependent on imports of important raw materials from China. The Commission sets specific targets: The EU should reduce 10 percent of the annual raw material requirements in the member states, process 40 percent within the internal market and recycle 15 percent. A maximum of 65 percent should be imported from a single third country.

The goals are ambitious because the EU is facing several problems in implementing them. So far, no member state has been mining rare earths, which are essential for the production of green technologies. There is sometimes a lack of know-how for processing and recycling, and there is also a risk of environmental damage. Beer sees one solution in funding research, with pilot projects giving her hope. “For example, there is the idea of ​​producing batteries like a kind of ‘construction kit’ so that the individual ingredients can be better recycled,” says the FDP MP. At the same time, it relies on diversification of imports, as the EU is working on partnerships with different countries. Member states should “buy raw materials together, for example as happened with vaccines during the Covid pandemic,” said Beer.

Until recently, the triad of “partner, competitor and rival” was heard in the EU when it came to relations with Beijing. The “de-risking” proclaimed by the President of the Commission makes it clear that the focus is now on rivalry. According to Beer, China has “in its own hands” whether this ultimately leads to economic decoupling. The People’s Republic and Europe could continue to be economic partners “if China adheres to the rules-based order and is willing to offer fair conditions and abide by the rules of the World Trade Organization,” she adds.

Brussels discusses sanctions against Chinese companies

In the course of a decoupling from Beijing, the EU can fall back on an instrument that it already used against Moscow after its invasion of Ukraine: sanctions. In Brussels, the debate is already in full swing. The starting point is the Russian war of aggression. The EU accuses companies in China of being involved in circumventing sanctions against Russia. There is “clear evidence” of this, said von der Leyen on the sidelines of the G7 summit in Japan. However, the fact that the companies are registered in China does not necessarily mean that they are exclusively local companies.

The member states are currently discussing the eleventh sanctions package, in which these companies are to be subject to sanctions. “We are serious about wanting to stop circumventing sanctions,” said von der Leyen. If the President of the Commission implements her will together with the member states, the EU would enact secondary sanctions for the first time. Beijing reacted with irritation to the plans. It threatens the Europeans with countermeasures. If both parties start outdoing each other with embargoes, de-risking can quickly turn into decoupling.

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