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What ‘De-risking’ Means for China

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What ‘De-risking’ Means for China

Beijing seems unable or unwilling to grasp the very different lineages of “containment” and de-risking.

What ‘De-risking’ Means for China
Credit: Depositphotos

There was much for Beijing to dislike in the publicly-announced results of the G-7 Summit held in Hiroshima from May 19 to 21. In addition to taking strategic and political positions adverse to China, the leaders of Germany, France, Italy, Japan, Canada, the United Kingdom, the United States, and the European Union jointly affirmed their support for economic “de-risking” in their economic cooperation with China.

Beijing’s reaction to the G-7 meeting suggests it sees the industrialized democracies moving closer to supporting what the Chinese call a U.S.-led effort to “contain” China.  That oversimplified perception has several important and negative ramifications for China.

Chinese officials and commentators have recently courted Europe vigorously, imploring European countries to distance themselves from the United States, and specifically to stay out of the alleged U.S. containment campaign. The basic pitch has been that Europeans should beware of a self-interested United States using them as “puppets” to the detriment of their own interests. This framing made Washington the enemy as China extended an open hand to Europe.

Despite Chinese efforts, however, the trendlines are disappointing from Beijing’s standpoint.  In early 2023, European countries moved toward implementing restrictions on investing in China, exporting semiconductors to China, and allowing China to compete in the European renewable energy market.

Chinese opinion toward Western Europe has noticeably hardened, moving toward equating de-risking with containment. Wang Lutong, Ministry of Foreign Affairs’ director general for European Affairs, complained on May 10 that “Europe gives [China] a stab in the back… bullying China on economic issues.”  A May 11 editorial in the state-owned Global Times lamented Europe’s “submission and dependence on Washington’s comprehensive containment strategy against China.”

From Beijing’s standpoint, the G-7 outcome indicated a continuation, perhaps even an acceleration, of the negative trend. Hence China’s Foreign Ministry on May 20 accused the G-7 of “containing” China. A Xinhua News Agency commentator followed up on May 25 that “the G7 interprets its own ‘risk’ as only induced by China, or in other words, only by containing China can it get rid of the risk.”

This is despite the fact that the communique from the G-7 meeting specified that the group does not favor containment: “Our policy approaches are not designed to harm China nor do we seek to thwart China’s economic progress and development.”

Beijing seems unable or unwilling to grasp the very different lineages of “containment” and de-risking.

Containment is associated with U.S. policy toward the Soviet Union during the Cold War. It included political and military efforts to prevent (presumably Soviet-controlled) Communist parties from taking over additional countries. The economic aspect was a broad embargo against doing business with the Soviet Union. Most Chinese think containment is the current U.S. policy toward China, and believe the intention is to suppress the growth of China’s economic power and international influence so as to preserve Washington’s dominant position in the Asia-Pacific region.

Xi Jinping says the United States is practicing “comprehensive containment” and “all-around containment, encirclement, and suppression of China.” Other Chinese officials say the U.S. is “seeking to suppress China through all possible means.” These are gross exaggerations. In its trade with the United States in 2022, China was the beneficiary of a nearly $400 billion surplus. Washington did nothing substantial to stop China from building military bases in the South China Sea. U.S. universities still train thousands of Chinese students annually in the STEM fields.

U.S. policy toward China today is essentially an enlargement of the arms embargo of 1989 – imposed in retaliation for the Tiananmen Massacre – to include restrictions on certain forms of high technology transfers, such as semiconductors. The approach is not unreasonable given that China is now the United States’ strongest and most likely potential adversary. Indeed, China is itself also engaged in economic decoupling from the United States in a few key sectors.

While containment is a strategy by a great power to thwart a challenge by another great power for international strategic leadership, de-risking is wholly different, with more modest and defensive aims. Use of this term in the context of economic relations with China is credited to a speech by European Commission President Ursula von der Leyen in March 2023.

Europe does not seek strategic leadership in the Asia-Pacific region and has no hegemonic position to defend. The Europeans will trade with the region regardless of which regional country is strongest. Rather, the aim of de-risking is to avoid over-dependence on a potentially problematic supplier. China has placed itself in that category through its recent behavior.

The Chinese government now routinely uses its economic leverage to punish trading partners over political disputes. Australia’s case is illustrative. Already angry at Australia for taking steps to root out Chinese Communist Party interference in Australian politics, Beijing abruptly restricted imports of several Australian products after Canberra called on the World Health Organization to investigate the origins of the COVID-19 pandemic. European countries have suffered similar economic coercion from China.

A related problem is the nature of China’s political system. The government is insecure due to the lack of a popular electoral mandate for perpetual one-party rule and the need to uphold the Xi Jinping personality cult. At the same time, the overwhelmingly strong state can impose sudden and draconian policies that may disrupt the flow of supply chains that pass through China.

The all-important need of the Chinese Communist Party to save face combined with its massive powers of control over society led to the persistence of lockdowns into 2022, delaying China’s return to full productivity and contributing to shortages and inflation worldwide. China’s internal politics now seems to be pushing the country toward a war over Taiwan, which would interrupt much of China’s international commerce for an indefinite period.

In other words, Europe has ample justification for reducing its reliance on Chinese supplies out of self-defense, even completely absent any interest in suppressing China’s economic development. China’s inability to see the difference between “containment” and “de-risking” is a side effect of its refusal to engage in the introspection of its own behavior, which would be a necessary step toward remolding European policies.

Now that U.S. officials have embraced the term “de-risking,” the United States and the Western European countries have found a unifying formula for a more coordinated China policy. Policy adjustments by the world’s leading economies aimed at decreasing reliance on Chinese suppliers will go a long way toward partial containment of Beijing’s influence. This is a win for the United States’ grand strategy and a loss for China’s.

The G-7 Communique is further evidence that China’s efforts to divide Western Europe from the United States are not succeeding. Factors such as China’s counterproductive “wolf warrior” diplomacy, human rights issues, the Ukraine War, and anxieties about China’s bellicose signals toward Taiwan create ill-will in Europe that exceeds European annoyance with the United States.

China’s long-term opportunity to reap benefits from its economic relationship with Europe is at stake. The Comprehensive Agreement on Investment between China and the European Union, originally accepted by both sides in 2020 over U.S. objections, now appears dead. Europe is also increasingly likely to retaliate strongly against China over an attack on Taiwan.

Beijing’s conflation of de-risking and containment is another instance of Beijing’s lack of strategic empathy. China’s political milieu allows little place for the idea that other countries may justifiably see some of China’s policies as troublesome or threatening. Much of the containment that Beijing perceives is self-inflicted.