EU-China relations

Why Alleviating Resource Dependency on China is so Complex for the EU

The People’s Republic of China is putting more and more pressure on European decision-makers. They have not been aware of how deeply entangled European economic productivity is with Chinese supply chains, especially Chinese raw materials imports. Along with the understanding of Europe’s dependency comes the realisation that this creates a political dependency that is to be taken very seriously. While the EU is looking for ways to diversify alternative ways to cover its resource supply, unity on a common political stance towards China seems to be almost impossible to achieve.

Europe will be strongly dependent until it isn‘t

As we already indicated in our previous article on resource dependency, the diversification of resource access is an inevitable step for Europe. For the time being, this means especially more mining in Europe, as well as stable new and renewed partnerships with friendly, resource-rich nations, ideally framed by bi- or multilateral trade agreements. Additionally, sustainable solutions such as the transformation towards a more circular economy may also disrupt current value chains and diminish Europe`s overall thirst for resources. These steps will take many years to implement and complete. In the meantime, Europe’s dependency on China prevails.

Not only is Europe only mining its own resources to a very limited extent, but crucial refinement steps have also been outsourced. Should China cut resource supply to Europe, the larger part of its most powerful industries, and especially its most future-oriented technologies would come to an immediate standstill. China is well aware of this. And while Europe remains hopeful to be able to continue prioritising opportunities for “partnership”, Europe’s more recent ambivalent perception of China as also a “competitor” and “systemic rival” is funded by a deep scepticism and lack of trust regarding the potential that “partnership” still has to guarantee long-term stable relations and joint goals. And thus, as long as Europe has not yet diversified its resource supply, China can exploit Europe’s dependency to push for political concessions, or put pressure on single member states to influence decision-making at the EU level.

Europe’s biggest problem is that time is not on its side: the lengthy process of resource diversification has to work at different levels: between the EU and its member states, between EU member states in the European Council, within single member states that operate under very different economic conditions, between EU member states and third states, between the EU and third states or state groups, and ultimately, at the level of companies and industries that need to develop the practical solutions. Negotiations take time, and so does the establishment of new infrastructure, the latter of which also requires a huge initial investment. The systematic payoff can only be expected for much later when new and diversified global co-operations are in place, and technological innovation has allowed Europe to become both more self-sufficient, and hopefully, make a mark in offering high-quality technology to the global market that helps extract and use resources efficiently and sustainably.

China’s position remains ambivalent: it will also be challenged, but not immediately

Strategically, China has a great interest in the European market and is unlikely to give up its partnership with Europe. At the same time, it prioritises autonomy over everything else, and thus also proactively seeks out different outlet markets or directs its raw materials towards its own needs. China is aware that in the current situation, the political weight of Europe’s dependency on China remains higher than the scope of China’s access to the European market. Still, a more self-sufficient Europe is likely to significantly challenge China in the long run. This is mainly due to its own internal tensions and how these will play out in the mid-to-long-term: the fact that China’s national economy has been severely damaged by Beijing’s rigid zero Covid policies and has faced a significant reduction in growth, and that numerous Chinese households, especially its hopeful new middle class, are financially troubled, results in the biggest challenge that the People’s Republic has faced in decades. To date, the government can offer Chinese society no convincing recovery plan. This raises pressure as well as resistance within society, as we have seen in last November’s protests. Beijing’s “U-turn” policy towards a reopening is no coincidence: it shows how aware the government in Beijing is of shifting political perceptions within the Chinese society, and how much it prioritises effective internal stability and “order” without shying away from demonstrating ambivalence.

Consequently, stability and order are likely to remain also among China’s highest priorities in its short-term relations with the EU. The highest-possible maintenance of stable economic exchange remains, for the time being, as much in China’s interest as in Europe’s, not least because it also demonstrates to the Chinese society that China is performing well on the global market. However, due to a severe lack of trust, economic relationships of the future are likely to focus more and more on areas where common goals can still be identified, such as climate change mitigation, sustainable technologies, and global development support. In the mid-to long term, Europe’s withdrawal as an investor in China is likely to affect its innovative power substantially, especially due to the lack of connectivity to and integration with scientific and innovation research in the West. The secondary effects of this process on the Chinese economy and Chinese businesses are certain.

Europe has to show initiative

The current situation clearly requires Europe to come to terms with its own liberal core values: political independence and the protection of liberty are deeply rooted in economic space for manoeuvring. It is not only an economic question but also one of identity. While the route to fully claiming back that space for manoeuvre may take decades, it also offers unique opportunities for Europe to show global leadership. It is forced to move on from reaction to action, from hesitance to self-confidence, and from one-sided partnership to multi-faceted partnerships that not only drive innovation but also promote European quality standards and ethical core values globally. For this, the EU requires a clear pledge from its member states, decision-makers, the entire European society as well as its businesses, to jointly work towards this goal. Challenging, but not impossible!

For a similar article in German, read here: https://www.freiheit.org/de/deutschland/ressourcensouveraenitaet-europa…