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The Contest for “Word of the Year” Yields a Winner: "De-Risking"

The term "de-risking" has become the front-runner for the word of the year in the geopolitical category, reflecting the growing concerns of Western nations on their relationship with China.

De-risking has become more popular among Western leaders since it takes a more practical and focused approach than the prior idea of "decoupling" Western economy from China. Businesses in the West are now being warned that trading with China is still feasible, but certain protections must be put in place.

The commodities and technology that Western nations import from China and the goods and technologies that China imports from the West can be divided into two categories for the purposes of de-risking. Concerns about cutting-edge technology with potential military uses are most prevalent in the West. Restrictions on semiconductor exports have recently been declared by the US and Japan, with a focus on technologies that could be used for military applications.

In addition to limiting China's access to vital technologies, the G7 countries are also working to lessen their own reliance on China. Among the main areas of concern are rare earths and critical minerals, which are necessary for battery technology and the green transition. For instance, China provides 97% of the essential component lithium to the European Union, a vital component in battery production.

Reducing reliance includes Taiwan, which provides over 90% of sophisticated semiconductors and is potentially vulnerable to a Chinese invasion. The Chips Act of 2022 was introduced in the US in response to this, funding $52 billion to increase local chip manufacture. Although the principle underlying de-risking appears straightforward, there are considerable difficulties in its actual application.

Conflicts between corporate and national interests, the cost and difficulty of reducing reliance, and ambiguity over the nature of the dangers involved are the three main challenges that have already emerged. It is yet unclear whether the worries concern the potential for conflict or political compulsion.

Limiting exports and essential technology is a game that both parties can participate in. As a result, the West is making urgent efforts to lessen its reliance on China in critical industries. The viability of this task is disputed by experts.

Some claim that China's dominant position in the production of solar panels, batteries, and essential minerals makes a green transition in Europe impossible without it. Others are more upbeat and point out that rare earths are not as scarce as their name would imply. Critical mineral processing is China's exclusive domain, but nations with low population densities, like Australia, are eager to step up and assume this duty.

Reducing dependence on China, limiting technology exports, and enticing Western businesses to keep doing business in the Chinese market are the three main pillars of the growing Western de-risking strategy. As long as political coercion is the risk being mitigated against, this strategy makes sense.


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