EU’s Rebalancing Efforts to Reduce Economic Dependence on China

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The European Union (EU) is looking for ways to reduce its reliance on China, the world’s second-largest economy. Recently, European Commission President Ursula von der Leyen and French President Macron visited Beijing for a joint meeting with Chinese President Xi Jinping to discuss the urgent need to rebalance the economic ties between the EU and China. This article outlines the steps the EU is taking to become less dependent on China, while maintaining viable economic relations.

The EU’s goods trade deficit with China has risen significantly since the start of the COVID-19 pandemic, reaching 396 billion euros ($432 billion) in 2022. China accounts for 20% of EU goods imports and 9% of its exports, with large exports of cars to China in 2022 worth 24.3 billion euros.

Electric vehicles (EVs) however, have seen a large deficit, with exports to the EU rising to 6.9 billion euros in 2022. A study by PwC estimated that by 2025, nearly 800,000 cars built in China would be sold in the EU, roughly double the 2022 figure, with just under half from Western automakers based in China and over half from Chinese producers.

The EU has proposed the “Green Deal Industry Plan” that seeks to enhance the access to raw materials, as well as to increase its clean tech manufacturing industry and reduce its dependencies on China. To achieve this, the EU is dependent on China in the supply of rare earths, lithium and magnesium, which are used for purposes such as wind power generation, hydrogen storage of batteries.

In light of this situation, the EU has proposedpublic tenders for green projects that would make it difficult for bids from countries to succeed if they supply 65% of more of a particular technology or product type, such as photovoltaic cells, wind power or heat pumps. This is part of the EU’s goal of manufacturing at least 40% of the solar panels, fuel cells and other equipment that it consumes for its green transition.

For Ursula von der Leyen, reducing EU dependence on China is not about total decoupling, but rather about reducing risk and rebalancing economic ties. The EU will have to adapt in the coming years to recover and become more independent, while maintaining peaceful and profitable relations with China.