As Europe strives to achieve its net-zero goals, its reliance on China for crucial raw materials poses significant challenges for the bloc’s economy and industries. With China controlling a substantial portion of global rare earth reserves, essential for technologies in the defense and green energy sectors, Europe faces the need to diversify its supply chains.
This article examines Europe’s dependency on China, the growing demand for Chinese-made electric vehicles and solar panels, and how the bloc plans to implement a ‘derisking’ strategy to safeguard its economic interests.
- China’s Dominance in Green Energy Supply Chains
Europe is heavily dependent on China for raw materials like lithium, magnesium, cobalt, and manganese, vital components in green energy technologies. With China controlling around 37% of global rare earth reserves, its geopolitical power is enhanced. Although these minerals are not mined in China, they are processed there and essential for producing batteries, wind turbines, and solar panels.
- Growing Demand for Chinese-Made Electric Vehicles
The European continent witnesses an increasing demand for Chinese-made electric vehicles (EVs). While designed by European automakers, these vehicles and parts are manufactured in China. PwC estimates that up to 800,000 Chinese-built cars could be exported to Europe by 2025, strengthening the economic ties between the regions.
- Reliance on Chinese Solar Panels
Despite the soaring demand for solar power in the EU, 80% of Europe’s solar panels are imported from China. This dependency raises concerns for Europe’s energy security, as it remains reliant on Chinese production capabilities.
- Trade Imbalance and Derisking Strategy
Europe’s trade deficit with China is growing, further highlighting the need for a derisking strategy. Brussels aims to decrease its dependency on China and promote fair competition, transparency, and reciprocity in trade agreements. The European Commission plans to reassess the Comprehensive Agreement Investment (CAI) strategy to mitigate risks to the EU’s economy and security.
- Learning from Japan’s Experience
Europe can draw lessons from Japan’s past experience when China used critical minerals as “trade weapons” in 2010. This event prompted Japan to diversify its supply chains and reduce dependence on China. Europe must adopt a similar approach to safeguard its economic interests and reduce vulnerability.
Conclusion:
Europe’s push towards green energy and net-zero goals relies heavily on Chinese supplies of essential raw materials. However, this dependency poses risks to the bloc’s economy and security. To navigate this challenge, Europe must implement a derisking strategy, promote fair trade, and reassess its investment agreements with China. Diversifying supply chains and reducing dependency on China will ensure the region’s economic prosperity while fostering a sustainable and secure green energy future.
