Eyeing China, EU to unveil plans to combat economic risks

German Chancellor Olaf Scholz shakes hands with China's Premier Li Qiang (L) next to their interrupteurs as he arrives at the Chancellery in Berlin on June 19, 2023AFP

The EU will on Tuesday detail the economic security risks facing the bloc and new tools Brussels can use as it seeks to muscle up against rivals Russia and China.

The bloc wants to learn lessons from the aftermath of Moscow’s invasion of Ukraine last year when Brussels realised too late how over-reliant the EU had become on Russian energy and had to scramble to find new resources.

It has already sought to bring more production nearer to or into Europe after the devastating supply chain shocks during the coronavirus pandemic.

The European Commission, the EU’s executive arm, will present the “economic security strategy”, in a move away from the European Union’s free-market ideals that has some worrying over a more protectionist push.

In the face of pressure from the United States to take a harder line, Brussels wants to define its own approach to Beijing that balances concerns over relying too much on China with maintaining trade ties to the world’s second-biggest economy.

While the commission has not directly described the strategy as a response to Beijing, the EU has adopted a series of measures to challenge China’s growing economic might.

Tuesday’s paper will identify the economic risks for the bloc and solutions to address them, as well as the measures that already exist.

Some EU member states worry about antagonising China and starting a trade war, while others argue now is the time to act to protect the bloc’s economic security.

“If we do not assess the risks from a European perspective then the dividing lines, they will be drawn either in Beijing or in Washington,” commission vice president Margrethe Vestager said last month.

The commission has already announced plans to push Europe to produce more clean technology including critical raw materials needed to manufacture dozens of electrical products.

‘Stop being naive’

It was commission head Ursula von der Leyen who first outlined an approach to China that she described in January as “de-risking rather than decoupling” since the bloc still needed to work and trade with Beijing.

The EU this year agreed to establish a trade tool that would go after countries that seek to put pressure on one of its members after China targeted Lithuania in a spat over Taiwan.

The commission is now mulling von der Leyen’s idea for a “targeted instrument on outbound investment” that could restrict overseas funding by European companies.

The EU fears that information about sensitive technologies could end up in the hands of China and the possible risks to national security that such a scenario could create.

One EU diplomat said Brussels needed to “re-arm the bloc’s economy” and admitted it was “astounding” how much economic reliance there was on China.

“We must stop being naive and protect ourselves, we must change the playing field,” the diplomat said, pointing to the rising number of electric cars from China sold in the EU, threatening the continent’s long-established car-manufacturing industry.

But there have also been calls for caution over how the EU confronts the risks.

BusinessEurope, the EU’s main business lobby group, urged the bloc to “carefully” consider European interests and competitiveness “before introducing additional restrictions on exports of goods and technologies and flows of investment”.

“The EU needs to strike the right balance between protecting its security interests and maintaining a conducive environment for trade and investment,” it said.

EU leaders will discuss the plans at a summit in Brussels next week.