China’s ‘de-risking’ from West worsening EU’s industrial decline, experts say
China’s efforts to “de-risk” its economy from the West through massive investments in manufacturing and strategic technologies is exacerbating Europe’s industrial decline, experts and business leaders say.
Beijing’s push to achieve greater strategic independence from the West — which long predates EU plans of “de-risking” from China, as outlined by European Commission’s President Ursula von der Leyen in March 2023 — comes amid weak Chinese demand for manufactured goods such as solar panels and electric vehicles, which pushed down global prices and led to accusations of “dumping” by European officials and business leaders.
“It’s a double whammy: China’s de-risking plus its lack of consumption are contributing to our deindustrialisation,” Alicia García-Herrero, a senior fellow at Brussels-based think tank Bruegel, told Euractiv.
García-Herrero’s explained that China’s attempt to assert domestic control over strategic supply chains contributed to the fall in EU exports to China last year.
She noted that this “especially” negatively impacted Germany, Europe’s largest economy whose export-led, manufacturing-intensive economic model has been openly questioned by EU and business leaders in recent months.
Weak Chinese consumption has also had “huge” downward effects on global prices, rendering European manufactured goods increasingly uncompetitive, she added.
“We’re not selling to them and they’re dumping stuff on us,” she said.
Philipp Lausberg, an analyst at the European Policy Centre (EPC), similarly noted the dangers of China’s “neomercantilist” policies for the European economy.
Eurostat, the EU’s official statistics office, reported earlier this month that year-on-year industrial output fell 5.7% in the bloc in January.
Last week, the European Trade Union Confederation (ETUC), which represents 45 million European workers, reported that Europe’s “increasingly rapid deindustrialisation” led to almost 1 million manufacturing jobs being lost over just the past four years.
The risks of de-risking
The analysts’ comments follow a report published last week by the EU Chamber of Commerce in China, which noted that Beijing’s “far more comprehensive form of risk management… predates EU de-risking by quite some time”.
Briefing reporters on the report, the Chamber’s president Jens Eskelund warned that Chinese oversupply is triggering a “a slow-motion train accident” in EU-China relations.
The study also argued that the EU would be pursuing policies aimed at attaining diversification, rather than self reliance like in the case of China, it said.
The remarks come as some high-profile Western CEOs, including Apple’s Tim Cook, meet Chinese officials in Beijing at the China Development Forum on Sunday and Monday (24 and 25 March).
In a speech delivered at the Forum on Sunday, International Monetary Fund (IMF) Managing Director Kristalina Georgieva openly encouraged China to steer the course of its economic model.
“China is poised to face a fork in the road — rely on the policies that have worked in the past, or update its policies for a new era of high-quality growth,” she said, echoing Chinese leader Xi Jinping’s call earlier this year for the country to pursue “high-quality development”.
Georgieva also specifically called on China to implement measures to boost domestic demand.
“A key feature of high-quality growth will need to be higher reliance on domestic consumption,” she said. “Doing so depends on boosting the spending power of individuals and families.”
Bruegel’s García-Herrero, however, expressed scepticism as to whether Beijing will ultimately heed Georgieva’s call, pointing to the fiscal restrictions imposed by China’s record levels of public debt as well as Xi Jinping’s previous warnings about the dangers of “welfarism”.
Lausberg further noted that boosting China’s domestic demand will not be sufficient to address the glut of Chinese manufactured products.
“If you look at those overcapacities, it’s literally impossible that […] Chinese consumers can consume all of it,” he said.
Securitising economies
Europe’s push to achieve greater strategic independence from China came after the Covid-19 pandemic triggered massive supply-chain disruptions, while Russia’s full-scale invasion of Ukraine in February 2022 prompted the sudden curtailment of energy imports.
It also comes at a time of rising tensions between China and the West, particularly over the status of Taiwan, a de facto autonomous island that Beijing regards as falling under its jurisdiction.
Relations between Europe and China were further marred by Beijing’s strengthening of economic ties with Russia following the start of Ukrainian conflict.
Alicja Bachulska, a policy fellow at the European Council on Foreign Relations, told Euractiv that it is impossible to isolate China’s and the EU’s respective de-risking efforts from the broader international context.
“China’s policies are not only based on the Chinese Communist Party’s domestic logic, but also serve as a response to the international trends, with the securitisation of economic development being now the guiding principle and a new paradigm for Chinese authorities,” she said.
“Countries all over the world [are] becoming more inwards-looking and risk-averse against the backdrop of growing unpredictability,” she added.
Such comments were echoed earlier this year by European Central Bank president Christine Lagarde , who noted that countries are increasingly emphasising the importance of “security” over “efficiency” in their economic relations.