De-Risking vs Decoupling
- May 23, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
De-Risking vs Decoupling
Subject :Economy
Section: National Income
| The term was brought in lime-light by European Commission president, Ursula von der Leyen in March 2023 when she said that EU would not follow calls to de-couple from China that began under Trump, and that it was not in Europe’s interests to de-couple from China. |
De-coupling was the stand that took root under President Trump, and was further continued under present President Joe Biden. This approach involves using trade barriers, bans and sanctions to counter China’s emergence in strategic sectors that the US sees as a threat to its global dominance. De-risking is a counter-narrative that has emerged to soften that stance.
De-risking is the term that countries are referring to describe a changed economic and foreign policy attitude towards China. Countries like the US and EU are stressing that they want to strengthen their economic resilience by diversifying and deepening and ‘de-risking’ their relationship with China, while not becoming inward looking or trying to prevent Chinese growth.
- Technically the word, de-risking means to move business away from areas that are considered risky in terms of the return that can be generated.
- In the context of China de-risking can be interpreted as a reduction of the reliance on China in the economic sphere — for the supply of materials or as a market for finished goods — so that potential risks to trade and disruption of supply chains are reduced. Recent G7 statement also said that it would be more interested in a China that played by international rules.
- US National Security Advisor (NSA) referred to De-Risking as having resilient, effective supply chains and ensuring we cannot be subjected to the coercion of any other country.
This development can be seen in light of following events:
- The weather balloon incident where US shot down a supposedly weather balloon that US alleges was a spy balloon.
- US efforts to become self-sufficient in semiconductor production.
China’s view:
China considers the actions of US to actually be of de-coupling nature and not de-risking. It has been facing pressure from the US in fields of information technology and manufacturing. US ban on export of certain advanced chips —which have military or AI applications to China.
History of de-risking (in context of financial sector, but same sense applies to China also):
- Banks de-risk by denying service to aid agencies that work in places like Syria that are under Sanction.
- With regard to finance as per experts De-risking can create further risk and opacity into the global financial system, as the termination of account relationships has the potential to force entities and persons into less regulated or unregulated channels.