Peace and Security in Northeast Asia By Herbert Wulf | 26 May, 2023
De-Risking, Not De-Coupling: Is It More Than A Smart Shift In Terminology?
How to deal with China? The Western industrialised countries have been trying for some time to find a convincing China strategy. One result of the recent G7 summit in Hiroshima is the development of such a joint China strategy – at least in theory. According to the final communiqué, the seven major economic powers that make up the G7 agree that it is not a matter of de-coupling economically from China, but of avoiding risks and reducing dependencies. This strategy is now referred to by the catchy Anglo-Saxon term "de-risking". So much for the theory. Whether and how this policy will be implemented in practice remains to be seen. Despite the unanimous declarations of the G7 governments, it is to be expected that each country—depending on its interests—has its own understanding what de-risking means.
Two events of global dimension, the COVID-19 pandemic and Russia's war against Ukraine, have led to a reassessment of relations with China within the G7 and beyond. The pandemic has highlighted the vulnerability of economic supply chains, when particularly Europe realised that urgently needed medical products were not adequately supplied. In an initial shock reaction, this has led to a discussion about the possibility of one's own economic self-sufficiency. But the debate quickly terminated since economists, especially the proponents of globalisation, were able to make clear that autarchy is not a realistic alternative given today's intensive global economic interdependence.
Russia's war against Ukraine then abruptly highlighted the dependence on Russian energy and raw material supplies. Since economic relations with China are in all industrialised countries even more extensive—and thus might become problematic in the event of a crisis—the concept of diversification of supply chains has been propagated. In order not to get into a situation of dependence on China or even blackmailed by China, the discussion focusses now on finding a balance between national security and economic interests. In short, will national security be threatened, will critical infrastructure be controlled by China if Chinese technology, especially in high-tech areas, dominates and if China continues to invest heavily globally? But how severe is the economic damage if cooperation with China, the world's second-largest economic power, is deliberately restricted to increase the own resilience?
In recent years, "de-coupling" has been the tough, bipartisan US response in the competition with China. Initially, this policy was introduced by former President Donald Trump. Particularly in the case of critical technologies, the USA is pursuing a robust policy of de-coupling and has introduced far-reaching export controls to deprive the global political adversary of crucial high technology. Neither the EU nor Japan are taking this hard line. The EU stuck to the formula that has been propagated for several years that China is both a partner, a competitor but also a systemic rival. With this European conception, each country was then able to interpret for itself which of the three aspects should have priority. Thus, neither the G7 group nor the 27 EU member states pursued a policy that could be described as a convincing common China strategy.
Apparently, the six remaining G7 members have now been able to convince the US to abandon the hard line of "de-coupling" – at least on paper. The final communiqué of the G7 meeting in Hiroshima literally states that the G7 is taking “concrete steps to coordinate our approach to economic resilience and economic security that is based on diversifying and deepening partnerships and de-risking, not de-coupling.” The objective is risk reduction and not de-coupling. Further on the communiqué is even more explicit: "Our policy approaches are not designed to harm China nor do we seek to thwart China’s economic progress and development. A growing China that plays by international rules would be of global interest. We are not decoupling or turning inwards. At the same time, we recognise that economic resilience requires de-risking and diversifying. We will take steps, individually and collectively, to invest in our own economic vibrancy. We will reduce excessive dependencies in our critical supply chains."
The term "de-risking", originally used in international finance, gained great popularity when EU Commission President Ursula von der Leyen spoke of "de-risking" several times in a keynote speech in March 2023 before her trip to Beijing: "I believe it is neither viable—nor in Europe's interest—to decouple from China. Our relations are not black or white—and our response cannot be either. This is why we need to focus on de-risk—not de-couple.”
Is the G7's "de-risking" approach a substantially new strategy in dealing with China? In her keynote speech in March, von der Leyen explicitly mentioned that it was necessary to "develop new defensive tools" in critical areas, especially in high-tech areas such as microelectronics, quantum computers, robotics, artificial intelligence, biotechnology, etc. The governments in Great Britain and Japan adopted this policy, while the USA now also speaks of "de-risking". Thus, the American and European positions are converging. It remains to be seen whether this will lead to concrete changes in export, import and investment policies.
China's government reacted promptly. It accused the G7 and, above all, the United States of economic coercive measures to slander China and interfere in China's internal affairs. Referring to a comment by British Prime Minister Rishi Sunak, “that China poses the biggest challenge of our age to global security and prosperity”, Beijing responded by stating “that the British side are simply parroting words from others and constitute malicious slanders in disregard of the facts." On the one hand, the Chinese government signals that it is still open to economic cooperation. On the other hand, it is moving on to countermeasures. Immediately after the G7 summit, the Chinese government subjected the US company Micron Technology, which manufactures semiconductors in China, to a cyber security review. The objective of this measure is to “safeguard the security of the information infrastructure supply chain." In other words, retaliation: An eye for an eye, a tooth for a tooth.
What's new about the G7 policy of de-risking? De-risking may involve fewer negative associations than de-coupling. Risk minimisation may sound a bit more diplomatic than hard decoupling. "Who doesn't like reducing risks?" commented Bates Gill, China expert and former director of SIPRI. "It's just rhetorically a much smarter way of thinking about what needs to be done." However, the disputes about security challenges and the configuration of future economic relations between China and the G7 countries will hardly change because of this risk reduction strategy. The positions are still contradictory.
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Herbert Wulf is a Professor of International Relations and former Director of the Bonn International Center for Conflict Studies (BICC). He is presently a Senior Fellow at BICC, an Adjunct Senior Researcher at the Institute for Development and Peace, University of Duisburg/Essen, Germany, and a Research Affiliate at the National Centre for Peace and Conflict Studies, University of Otago, New Zealand. He serves on the Scientific Councils of SIPRI and the Centre for Conflict Studies of the University of Marburg, Germany.