Manelectronic risk is a An ugly name for an interesting idea. In explaining how they want to manage their future relationship with China, a growing number of Western leaders describe some form of risk management. This approach has been described as a middle way between the impossible — that is, trying to contain or isolate a country of China’s size and importance — and the intolerable — that is, relying on authoritarian regimes that often bully smaller countries.
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European Commission President Ursula von der Leyen is a leading user of the term. The head of the EU’s permanent executive said decoupling from China, an important trading partner and a major player in tackling climate change and other global challenges, was neither feasible nor in Europe’s interest. Instead, she called for de-risking the relationship, citing China’s growing repression at home and assertiveness abroad.
Derisking is actually an umbrella for several defensive strategies. Mrs von der Leyen emphasized diplomatic candor to avoid misunderstandings. Ahead of her recent visit to Beijing, she detailed China’s breaches of trust, from unfair trade practices to Xi Jinping’s embrace of Vladimir Putin, even after Russia’s “brutal and illegal invasion of Ukraine”. Likewise, on 18 April the foreign ministers of the Group of Seven (G7) The Rich Countries Club lists behaviors China should avoid, including forcing foreign companies to hand over technology or data in exchange for market access, and supporting cyber theft of trade secrets. For good measure, GSeven ministers warned China against using force to resolve territorial disputes, including Taiwan (a scenario that could itself disrupt the global economy).
In the U.S, European Union Elsewhere, de-risking may involve screening or even restricting investment in and out of China, and providing subsidies for rebuilding domestic industries to reduce China’s dominance in vital supply chains. It can also describe the use of national security tools. To prevent China from using foreign technology to create powerful weapons, the United States, Japan and the Netherlands are restricting exports to China of cutting-edge semiconductors and the equipment needed to make them.
Liberal democracies have even turned to risk management in fraught areas such as human rights. Foreign criticism will not end China’s iron grip on Xinjiang. In the name of fighting Islamic extremism in that far western region, authorities demolished mosques, jailed poets and sent Uyghurs to re-education camps, forced work programs and harsh boarding schools. But democracies have the right to protect consumers from buying the fruits of repression. The U.S. Uyghur Forced Labor Prevention Act of 2021 prohibits goods from Xinjiang and using inputs from the region unless traders can prove they were not made with forced labor. Over the past 10 months, customs have seized nearly $1 billion worth of goods, including solar panels, which often use polysilicon mined and processed in Xinjiang. Without naming China, European Union A ban on forced labor products has been proposed.
Alas, to be successful, these various strategies must overcome a huge hurdle: Xi Jinping’s China does not want to de-risk. It starts with diplomatic candor and handing China a list of actions that make Western powers angry or concessions (such as international commitments on climate change) that Europeans and others cheer. In fact, China increasingly believes that speeches by the United States and its allies will be repugnant to many countries, especially poorer ones. This view was further bolstered by recent visits to China by French President Emmanuel Macron and Brazilian President Luiz Inácio Lula da Silva.China’s foreign ministry formally refutes statement issued by foreign ministry G7 Designed to engage countries in the Global South. A spokesman accused the group of “arrogance” and “condescending accusations” in a way that “runs counter to the prevailing trend of the world today”.
Nor does China want outsiders to de-risk its supply chains. Quite the opposite: China’s dominance as a producer of key commodities and commodities is a stated goal of Xi Jinping. A few years ago, Communist Party leaders called foreign reliance on Chinese supply chains “a powerful counter and deterrent capability.” In contrast, Xi Jinping has repeatedly urged China to avoid foreign dependence and achieve independence in key technologies.
It’s all about national security
For foreign companies in Mr. Xi’s China, even checking their own supply chains for irregularities is risky. The Central Political and Legal Affairs Commission, a powerful law enforcement agency, marked National Security Education Day on April 15, warning Chinese citizens to watch out for the cunning tactics of foreign enemies, including in the area of economic security.A case study involved a Chinese supply chain auditor who was punished under anti-espionage laws for helping a foreign company non-governmental organization “Fabricating” allegations of forced labor in Xinjiang. One supply chain expert said it reflected an unpleasant trend. Years ago, Chinese suppliers tolerated foreign audits as a sign of quality control. Today, he says: “Broadly speaking, anything to do with forced labor is completely off-limits. You can’t ask these questions without endangering everyone you come in contact with.” You refused to do business in Xinjiang.
It is clear that China will allow foreigners to conduct due diligence when their own interests require it. At the end of 2022, U.S. officials will be allowed to visit Chinese chip-making companies to check whether they are selling us Technology for military end users. This reflects a contest of power. The United States dominates many areas of chip manufacturing and has threatened to blacklist Chinese companies.
Reducing risk is not a stupid way to approach relations with China. Sustained engagement requires risk management when trust breaks down. Still, China is expected to refer to risk reduction as another form of containment. Decoupling will not be easily avoided. ■
Read more from our China columnist Chaguan:
Why Xi Jinping Is Not Another Chairman Mao (April 5)
Joe Biden Tries to Pull a Chinese Tiger’s Teeth (March 30)
The charm of cities with the lowest prices in China (March 22)
Another: How did the teahouse column get its name
