Alleviating financial dependency on China is complex for EU. Know why

European Union ministers agreed on Friday (May 12) to decrease the bloc’s financial dependence on China, but will now have to find out how to make that a reality, according to foreign policy chief Josep Borrell.

Borrell stated that foreign ministers broadly supported a strategy to shift China policy to emphasise its role as a political rival while continuing to consider Beijing as both a partner on global problems and an economic competitor, as reported by Reuters.

“Colleagues welcomed the paper that we presented. They agree on the basic lines of this re-calibration of our strategy on China,” Borrell told reporters after their meeting in Stockholm.

“When a dependency is too big, it’s a risk,” he declared.

Borrell stated that the EU must learn from the “strategic mistake” of becoming overly reliant on Russian gas in the years preceding Moscow’s conflict in Ukraine.

He said that the EU is now even more reliant on China for important technology such as solar panels and essential materials than it was on Russia for energy. 

“De-risking is just a word. But behind this word, there is a lot of work that will take time, to review all our economic relations with China,” he said.

Borrell emphasised that the goal was not to “decouple” the European and Chinese economies, but to rebalance them.

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Lithuanian Foreign Minister Gabrielius Landsbergis said that even if the EU does not wish to economically decouple from China, it must be prepared for such a situation.

“Somebody has to devise a possibility that a de-coupling might happen – not because we wished it, like with Russia, not because we willed it but because the situation, for example in the Taiwan Strait, has been changed by force,” he said.

Officials will now optimise the plan before presenting it to EU leaders, who will meet in June to discuss China.

The idea is the latest attempt to achieve a compromise between the EU’s 27 member countries, maintain a separate EU strategy to Beijing, and maintain a tight collaboration with Washington, which is pressing for a tougher stance on China.

According to the letter, collaboration with the US would “remain essential.” 

But it says the EU “should not subscribe to an idea of a zero-sum game whereby there can only be one winner, in a binary contest between the US and China.”

As per the declaration, the EU should “diversify sources of supply in key sectors, particularly those critical to our green and digital transition,” such as semiconductors, 5G and 6G telecoms, batteries, raw materials, and critical minerals.

Why is achieving financial independence from China not as easy as it sounds?

More mining in Europe, in particular, as well as stable new and renewed ties with friendly, resource-rich nations, ideally structured by bi- or multilateral trade agreements, are required. Furthermore, sustainable alternatives such as the shift to a more circular economy may disrupt present value chains and reduce Europe’s overall desire for resources. It will take many years to execute and accomplish these tasks, according to the Friedrich Naumann Foundation. 

Europe not only mines its own resources to a very limited extent, but critical refining procedures have also been outsourced. If China stops supplying resources to Europe, the majority of its most powerful industries, particularly its most forward-thinking technology, will grind to a halt. This is something China is well aware of. And, while Europe remains optimistic about the ability to prioritise opportunities for “partnership,” Europe’s more recent ambivalent perception of China as a “competitor” and “systemic rival” is fueled by a deep scepticism and lack of trust in the ability of “partnership” to guarantee long-term stable relations and joint goals. 

As a result, as long as Europe has not yet diversified its resource supply, China can use Europe’s reliance to force political concessions or put pressure on single member states to influence EU decision-making.

Europe’s biggest problem is that time is not on its side: the lengthy process of resource diversification must work at multiple levels: between the EU and its member states, between EU member states in the European Council, within single member states operating under very different economic conditions, between EU member states and third states, between the EU and third states or state groups, and finally, at the level of companies and industries that must develop. Negotiations take time, as does the creation of new infrastructure, which often necessitates a significant initial expenditure, noted he Friedrich Naumann Foundation. 

(With inputs from agencies)