The recent G7 2023 Summit in Hiroshima ended with a Leaders’ Communiqué which includes some 600 words in two of its 66 paragraphs stating that the Western powers “stand together” on nine “elements underpinning” their respective relations with China, apart from claiming that “there is no legal basis for China’s expansive maritime claims in the South China Sea”.
On the one hand, the joint communiqué seems to extend an olive branch to Beijing such as by pledging that “our policy approaches are not designed to harm China nor do we seek to thwart China’s economic progress and development” and insisting that “we stand prepared to build constructive and stable relations with China” and “call on China to engage with us… on areas such as the climate and biodiversity crisis…”.
The communiqué also states that vis-à-vis China the G7 partners are “not decoupling or turning inwards.”
On the other hand, the over 19,000-word communiqué states, “We recognise that economic resilience requires de-risking and diversifying”.
Analysed superficially, this reference to “de-risking” sounds like a politically innocent reference to a practice common in the world of business, the financial sector in particular. According to the US Department of State, “De-risking refers to the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk.”*
A 2016 article by the World Bank, headlined “De-risking in the Financial Sector”, warns that “de-risking practices by global financial institutions threaten to cut off access to the global financial system for remittance companies and local banks in certain regions, putting them at risk of losing access to the global financial system.”**
According to the Council of Europe, “‘De-risking’ should never be an excuse for the private sector to avoid implementing a risk-based approach.”***
Vistage Worldwide, Inc., an executive coaching organisation based in the US, points out that for entrepreneurs de-risking and re-risking are a “liberating decision-making strategy,”, i.e., a way to repeatedly adjust risk levels.”****
Inherently, both de-risking and re-risking are risky operations.
“De-risking” has become Western politicians’ (European Commission President Ursula von der Leyen has developed a particular liking for the word) latest slogan concerning their relations with China. It is no longer just a business term but a political shibboleth in Washington, Brussels and elsewhere in the West to “describe” their future economic relationship with China.
According to Sunday’s communiqué, “de-risking” means that the G7 partners “will reduce excessive dependencies in our critical supply chains.”
The terms “excessive” and “critical” are, of course, a matter of opinion. As the US and China are the world’s biggest and second biggest economies respectively, it is quite normal that both play a preeminent role in global trade and investment relations. The European Union is not a federation such as the US, Brazil or Germany but a supranational entity whose 27 member states compete with each other for economic opportunities in, for instance, China.
EU countries should, therefore, be extra cautious in “de-risking” as far as their economic ties with China are concerned. I foresee rival EU member states’ governments competing through their inevitably different “de-risking” strategies with each other in overseas markets. Any realist knowns that charity begins at home.
Besides, I do suspect that some Western politicians use the term “de-risking” as a convenient euphemism for “de-coupling” from China because the latter term has gone out of fashion and become virtually taboo among “respectable” politicians due to its toxic overuse by Donald Trump.
I hope that “de-risking” as a political slogan will fall into disuse before long as well for the simple reason that it is poisoning global economic relations.
The G7 communiqué’s segment on China also contains a raft of accusations, such as that “China’s non-market policies and practices… distort the global economy”. The G7 partners stated that they “will counter malign practices, such as illegitimate technology transfer or data disclosure” and “foster resilience to economic coercion.”
Blithely accusing China of “economic coercion” without mentioning at least one alleged case (coercion is, after all, a crime) is both insolent and impudent – and an insult to 1.4 billion people, or nearly one-fifth of humanity.
As one would expect, the communiqué also expressed the G6 partners’ “concerns” about the situation in the East and South China Seas, Taiwan Strait, Tibet, Xinjiang (the latter of which I had the pleasure and honour to visit last year as a member of a Macau media delegation) and Hong Kong. Thank goodness, the communiqué spared Macau from the G7 partners’ “concerns”.
The communiqué’s China segment also claims that “there is no legal basis for China’s expansive maritime claims in the South China Sea” and that the Permanent Court of Arbitration’s Arbitral Tribunal’s controversial ruling in 2016 concerning the South China Sea “is legally binding upon the parties to those proceedings.”
The crux of the problem is that China did not accept the arbitration initiated by the Philippines in the first place, and neither did the Taiwan authorities – one of the not-so-frequent cases on which Beijing and Taipei concur.
China has claimed the South China Sea at least since the Ming Dynasty (1368-1644) and the maritime area’s so-called nine-dash line boundary was promulgated by the then Republic of China (ROC) in December 1947, i.e., nearly two years before the founding of the People’s Republic of China (PRC) on October 1, 1949. For the PRC, Taiwan and certain parts of the East China Sea and South China Sea are inalienable parts of China.
As in the case of Taiwan, the West should finally accept the fact that also both seas have belonged to China for hundreds of years. Besides, Beijing has always said that it respects international shipping routes there.
The G7 summit in Hiroshima ended with a ray of hope that Sino-US relations could be on the mend. President Joe Biden said at a press conference on Sunday: “I think you’re going to see that to begin to thaw very shortly.”
Let’s hope that his prediction will become reality “very shortly.” The world would be grateful for it.
China’s new ambassador to the US, Xie Feng, got to the heart of the matter when he said upon arriving in New York en route to the embassy in Washington, DC, early this week that the Sino-US “relationship is too important for us to let it fail,” adding that “working together, both will come out as winners; fighting each other, both will lose, and the world will be hurt as well.”
I hope that there are still enough political realists present in influential positions in US politics able to bring the world’s most consequential bilateral relationship back on the right track. The US being the head honcho of the G7, I am quite sure that once Sino-US relations improve, the other Western countries will follow suit in no time, based on the age-old dynamics of realpolitik – and the rest of the world would benefit as well.
In the meantime, I also hope that the Chinese, Brazilian and African peace initiatives to hammer out a diplomatic solution to the Ukraine conflict will gain traction in the nearest possible future. A strong dose of realism is needed to tackle the issue. It is about time the G7 partners got their act together and come up with their own peace plan. According to Sunday’s communiqué, the seven countries and the EU, which make up the grouping, said they would be “taking concrete steps to support Ukraine for as long as it takes in the face of Russia’s illegal war of aggression.” This, regrettably, doesn’t indicate that they are planning to put out peace feelers anytime soon.
– Harald Brüning
*https://www.state.gov/de-risking/#:——:text=De%2Drisking%20refers%20to%20the,%2C%20rather%20than%20manage%2C%20risk.
**https://www.worldbank.org/en/topic/financialsector/brief/de-risking-in-the-financial-sector
***https://www.coe.int/en/web/moneyval/implementation/de-risking
****https://www.vistage.com/research-center/business-operations/risk-management/20200122-decision-making-strategy-for-entrepreneurs/
