9 February

Economic exposure to China requires a coordinated Western response

Western businesses’ and by extension Western states’ growing economic dependence on China is problematic at a time of Western governments’ growing national security concerns over Chinese actions. Understanding what drives this complex economic entanglement is key for Western governments when developing strategies that balance economic interests against long-term security consequences.

A bar chart that shows that increasing imports from China to the EU.

In a recent study senior FOI analyst, Karl Lallerstedt, explains the seemingly paradoxical market logic behind growing economic exposure in spite of national security concerns regarding China, and the implications of such exposure. He draws parallels between the Western reluctance to take economic countermeasures against provocative Russian actions (prior to the full-scale invasion of Ukraine) and the reluctance to take economic countermeasures against China.

While some countries have started to take measures to reduce their economic exposure to China – specifically by restricting availability of strategic technologies, providing incentives for businesses to manufacture products nationally, and supply chain diversification requirements – there is a need for better coordination between Western nations.

“If China and the West are engaged in a race for economic and technological leadership,” Lallerstedt explains. “Then the West’s success will be contingent on continued cooperation and the ability to coordinate its policies towards China.”