Walking on eggshells: The twin transition and Europe’s quest to de-risk from China

By Janne Leino

The COVID-19 pandemic and the Russian invasion of Ukraine have shed light on Europe’s dependencies in critical sectors such as healthcare and energy. While Europe has been successful in reducing its energy dependency towards Russia, dependencies towards China remain considerable. De-risking from China will be challenging amidst a digital and green transition which will require raw materials and cleaner energy. Yet de-risking will be crucial for the EU to avoid repeating mistakes from the past and to increase Europe’s resilience against foreign interference. In this context, it is vital to examine how the EU should de-risk from China, how it should counter Chinese influence in third countries and in Europe, and how it should increase its own engagement in countries that are central for the twin transition. On the basis of an analysis, following recommendations can be made.

First, the EU should capitalise on its existing trade instruments. While frameworks to identify and monitor the risks associated with foreign investments have been adopted at the EU level, many member states still fail to implement these nationally. Before developing new strategies or instruments to de-risk from China, European countries should focus on making the most out of existing instruments.

Second, the EU should harmonise its interpretation of de-risking. A common understanding of what de-risking means should be established and common criteria for de-risking should be developed. Beyond member states, industry and civil society representatives should also be involved in this process to ensure that de-risking does not merely become an empty buzzword focusing solely on economic aspects but reflects the cross-sectoral wider challenge. As such, the EU should develop a comprehensive method and clear criteria to allow a common and holistic risk assessment in relation to China.

Third, the EU should communicate clearly and in a transparent manner with third countries when it comes to its intentions of de-risking from China and what this means for new collaborations. The EU should look to build equal partnerships with external partners, openly communicating how both sides can benefit from collaboration. To secure the digital and green transition, the EU should focus on collaborating with like-minded countries that could contribute to and benefit from Europe’s twin transition. Doing so, the EU should adopt both a bilateral and a multilateral approach, focusing on strengthening and expanding individual partnerships, but also on utilising and contributing to multinational networks.

Fourth, the EU should ensure that its financial and trade instruments match the political aims of de-risking and the twin transition. European initiatives have to go beyond defining strategies or creating new policy tools. The EU needs concrete and impactful projects and agreements. These in turn need to be communicated and to be visible to both European and third countries’ populations. With limited resources and often colliding national interests, this will not be an easy task.