- Chinese Premier Li Qiang said the idea of reducing dependency on China is a forced proposition.
- Li said companies — not governments or organizations — should have the freedom to assess risks.
- The US-China trade war has impacted manufacturing exports, particularly in the semiconductor industry.
Chinese Premier Li Qiang criticized governments in the West for their idea of reducing dependency on China.
In his opening remarks at the World Economic Forum’s “summer Davos” in Tianjin on Tuesday, Li said that “some in the West are hyping up the so-called phraseologies of reducing dependencies and de-risking.”
“These two concepts are forced propositions,” he added.
What is de-risking?
The word de-risk has been thrown around a lot this year in the context of China. It means reducing any form of economic vulnerability from a country without damaging trade or investment.
The word de-risk first made an appearance in March in a speech made by European Commission President Ursula von der Leyen.
“I believe it is neither viable — nor in Europe’s interest — to decouple from China. Our relations are not black or white — and our response cannot be either. This is why we need to focus on de-risk – not de-couple,” she said.
Subsequently, the G7 caught wind of the word. The group endorsed de-risk in its communiqué, writing that it was taking concrete steps to “coordinate our approach to economic resilience and economic security that is based on diversifying and deepening partnerships and de-risking, not de-coupling.”
Li slammed this strategy in his speech on Tuesday and said it is for companies to decide, not governments. He said if there is risk in a certain industry, it is not the call or decision by a particular organization or government.
“It is businesses that are most sensitive and are in the best position to assess such risks. They should be left to come to their own conclusions and make their own choice,” Li said, adding that governments and relevant organizations should not overreach.
World Economic Forum/Benedikt von Loebell
Why does de-risking matter?
China and the US have been in a trade war since 2018. It started when then-President Trump imposed duties on over $300 billion of Chinese exports. According to the Peterson Institute for International Economics, the trade war of 2018-19 devastated US exports to China.
These figures grew slightly in 2022 with imports and exports totalling $690.6 billion, according to official estimates. However, tensions continue to dominate the relationship between the two countries.
A big sticking point for the two nations is the US manufacturing exports to China. “Prior to the trade war, manufacturing was 44 percent of total US goods and services exports to China — the largest component of pre-trade war commerce. By 2022, that had fallen to 41 percent,” according to the Peterson Institute.
The manufacturing exports include semiconductors, equipment, aircraft engines and parts, and auto parts.
In a research note, JP Morgan wrote that semiconductors are at the heart of the US-China trade relationship. At the peak of Trump’s presidency, the US government imposed a 25{1652eb1ffa4184925f6a63a9c04ea6b421acb7a78117241e7d4325cdca8339fa} tariff on US imports of semiconductors and other goods from China. According to industry experts, this has resulted in a 3.1{1652eb1ffa4184925f6a63a9c04ea6b421acb7a78117241e7d4325cdca8339fa} price increase.
“According to the Semiconductor Industry Association, about 75{1652eb1ffa4184925f6a63a9c04ea6b421acb7a78117241e7d4325cdca8339fa} of global semiconductor manufacturing capacity is concentrated in China and East Asia while 100{1652eb1ffa4184925f6a63a9c04ea6b421acb7a78117241e7d4325cdca8339fa} of advanced semiconductor manufacturing capacity is located in Taiwan (92{1652eb1ffa4184925f6a63a9c04ea6b421acb7a78117241e7d4325cdca8339fa}) and South Korea (8{1652eb1ffa4184925f6a63a9c04ea6b421acb7a78117241e7d4325cdca8339fa}),” per the JP Morgan note.
JP Morgan argues that with the world’s most advanced semiconductors being manufactured in Taiwan, its tech dominance is deep-rooted and any material disruption could bring the semiconductor supply chain to its knees.