China Watch: Talking Past Each Other On ‘De-Risking’

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SUMMARY: The US and its allies recently stated that they seek economic de-risking rather than decoupling with China.  While Beijing welcomes the rhetorical softening, it is concerned that the goal of de-risking is to slow China’s technological development.  China has limited leverage in countering US-led export controls on semiconductors and other advanced technologies and is turning to diplomacy to try to prevent future economic restrictions.

In the past two months, US, European, and Japanese leaders have expressed their opposition to economic decoupling with China, instead framing their approach as reducing risks stemming from China’s mercantilist practices.  The shift from decoupling to de-risking is intended to reassure China that the US and its allies do not wish to block its economic progress.  

• In the joint communique issued on 20 May, G7 nations stated that they were seeking to “de-risk” their economies from China’s coercive economic practices rather than decoupling, defined as reducing or cutting off trade. 
• On 27 April, US National Security Adviser Jake Sullivan, citing remarks first made by European Commission President Ursula von der Leyen, said that Washington’s economic policy toward China is based on “de-risking and diversifying.”  He reiterated Washington’s desire to engage in robust trade with China and to work together on global challenges such as climate change, macroeconomic stability, health security, and food security. 
• In a major policy speech on China on 20 April, US Treasury Secretary Janet Yellen said that the US will take “narrowly targeted” economic actions to prevent certain technologies from reaching the PRC military and security apparatus.  Sullivan reiterated Yellen’s comments that export controls and potential outbound investment reviews would focus on a “narrow slice “ of technology that can threaten the US.

While China welcomes the rejection of economic decoupling, it assesses that the policy of de-risking is ultimately intended to slow China’s rise as an economic and technological power.  Beijing appears to believe that the US defines national security risks broadly to include hypothetical threats and non-technology sectors, despite Yellen’s and Sullivan’s assurances. 

• PRC Foreign Minister Qin Gang on 9 May expressed appreciation for the rejection of economic decoupling, but he questioned whether the true intent of de-risking was “economic de-Sinicization,” i.e., minimizing economic interactions with China.  A 25 May opinion piece in China’s official Xinhua News Agency warned that de-risking is decoupling with a less threatening name, mocking it as “old wine in new bottles.”

• Chinese media reports have pointed to a cancelled agriculture deal in North Dakota as evidence that the US defines economic risks from China broadly.  In February 2023, the Grand Forks city council terminated an agreement with a publicly traded, non-state-owned Chinese company to build a corn milling plant, after the US Air Force warned that the project location posed a significant national security threat because of its proximity (12 miles) to an Air Force base.

• Beyond the US and Europe, Beijing is worried that the newly released Japanese export control rules on semiconductor technology appear to go even further than US restrictions, requiring export permits for chipmaking tools for less advanced microchips that are used in automobiles and electronics.     

Beijing has limited leverage to retaliate against export control restrictions imposed by the US and its allies without hurting its own economy.  China on 20 May announced a partial ban of microchips manufactured by US-based Micron Technology, almost certainly in retaliation for US export controls on semiconductor technology destined for China.  However, targeting Micron, which supplies easily replaceable memory chips and has a relatively small market share in China, shows the limitation of Beijing’s leverage, according to industry experts.  China is reluctant to target Qualcomm or Intel because its industries depend heavily on these companies’ products. 

Beijing likely judges that it has few good options other than engaging Washington diplomatically to prevent further economic actions against China.  Beijing’s recent overtures to Washington follow a series of high-level diplomatic activities in April and May between China and key European nations.  China may have delayed its engagement with the US until it has built up some diplomatic momentum with Europe, in the hopes of strengthening its position in dealing with Washington.    

• China’s top foreign policy official Wang Yi met with Sullivan in Vienna on 10 and 11 May.  After a nearly five-month gap, China’s newly appointed ambassador to the US arrived in Washington on 23 May.
• On 25 and 26 May, Chinese Commerce Minister Wang Wentao met with US Commerce Secretary Gina Raimondo and US Trade Representative Katherine Tai in Detroit on the sidelines of the 2023 APEC Ministers Responsible for Trade Meeting.  Both sides raised concerns about each other but portrayed the meetings in a positive light, highlighting the importance of keeping lines of communication open. 
• Prior to his trip to the US, Wang met with the American Chamber of Commerce in China and executives of US companies with a major presence in China, including Johnson and Johnson, 3M, Dow, Merck, and Honeywell.  Wang vowed to protect foreign investors’ rights and to improve the regulatory and legal environment for foreign investors.  Wang’s message was likely intended to reassure nervous foreign business leaders after the recent crackdowns on international consulting firms and regulatory action against Micron.   

For now, China’s interest in engaging the US appears to focus on economic issues.  On 29 May, the Pentagon announced that China had turned down a request from US Defense Secretary Lloyd Austin to meet his PRC counterpart on the sidelines of a security forum in Singapore in early June.