Exploring the Dutch-Chinese De-Risking Dynamics in 2024

July 17, 2024

Author: Benelux Chamber Shanghai

Photo 1: Xi Jinping shaking hands with Mark Rutte. Source - NOS

17th of July 2024 by Tjan Ho Lai

“No forces could stop the pace of China’s technological development and progress.” thus spoke Chinese President Xi Jinping to Dutch Prime Minister Mark Rutte at that time¹. On 27th of March, Rutte visited China together with former Foreign Trade Minister, Geoffrey van Leeuwen, to strengthen diplomatic and trade relations between China and the Netherlands. In this meeting, Xi advocated to ease the export restrictions on the extreme ultraviolet (EUV) lithography machines from ASML, which produce the world’s most critical technology, specifically semiconductor chips, after politicians and lobby groups from Washington, D.C. persuaded Dutch policy makers². In fact, the geopolitical tensions between the United States and China have led to two divided fronts, in which the Western world including the Netherlands is pressured to pick a side. Consequently, on the 30th of March 2023, Ursula von der Leyen, President of the European Commission, has politicized a de-risking strategy³ - this implies to diversify away from the supply chain of the People’s Republic of China, doing so would make Europe less dependent on the trade and create a more resilient economy - which has led to a deterioration of the EU-China diplomatic relations (see factsheet)⁴, a trade war, i.e. tit-for-tat tariff sanctions, on electrical vehicles, solar panels and lithium-ion batteries (‘the new three clean tech exports’)⁵ and a fragmentation between East and West Europe, particularly the indirect support to the Russia-Ukraine conflict⁶.

Nowadays, the Dutch media portrays China in a fairly unfavorable light. The Telegraaf reports that “China is clearly on the side of Russia”⁷, the NRC reports that “the friendly relationship between China and Netherlands was undermined by the incident with a naval ship”⁸ and the Volkskrant reports that “A news reporter of Volkskrant is the target of Chinese intimidation”⁹. In the light of this negative narrative, biased or justified, this article attempts to examine the following question “What are the current Dutch political and economic perspectives on Dutch-Chinese relations?”

Development of De-Risking in the Dutch Political Landscape

In a report of the European Think Tank Network on China (ETNC)¹⁰, the national perspectives of 21 European countries and the UK on their de-risking policy from China were collected and published. In the analysis for the Netherlands, Clingendael Institute - an independent think tank - provides several insights on “an extensive, but fragmented de-risking approach”¹¹. The Netherlands has implemented several “promoting, protecting and partnering” policy (3P’s) measures to mitigate the China risk ranging from minimizing Chinese influence domestically¹² (screening of foreign direct investments), the National Technology Strategy¹³ (including capital packages to prevent hostile takeovers from Chinese companies) and “China Plus One” strategy¹⁴ (friend-shoring with Vietnam). Furthermore, the key concern of the Dutch political parties - PVV, GL-PvdA, VVD, NSC, D66, BBB - were primarily focused on the reduction of the dependence of the critical raw materials (CRMs) of China, which owns 60-70% of the global production and 90% of the refining capacities¹⁵¹⁶ for rare earth minerals (44 MT reserves), such as praseodymium (for aircrafts), dysprosium and neodymium (for strong magnets). Although the de-risking approach has shifted the Dutch political perspective on the impact of China on the global economy, the bilateral trade relationship has not experienced any severe hardships or setbacks and remains in equilibrium since both countries have a mutually beneficial relationship of importing and exporting goods and services with each other. Thus, the aim of the Dutch government seems to be promoting trade and business opportunities with China but also informing companies, organizations or institutions about risks of excessive exposure to soft power of China.

Figure 1: The “Promoting, Protecting, Partnering” policy measures of the Netherlands - Source: The Clingendael Institute

Strategic Shifts in Trade and Investment

The Netherlands and China are important economic interwoven partners through commercial activities. From 2019 to 2024, the trade and investment flows between the Netherlands and China have fluctuated remarkably¹⁷. Between 2017 and 2022, the trend in exports of China - mainly consisting of telephones, semiconductors devices and computers - to the Netherlands has increased 78.5% at an annualized rate, from $3.07B (USD) in 2017 to $55.6B in 2022¹⁸. Also, the trend in exports of the Netherlands - mainly machinery and malt extract (used for processing sweetening of liquids) to China have increased 65.6% at an annualized rate, from $941M in 2017 to $11.7B in 2022¹⁹, respectively. As a result, this steep increase reached a peak of $116.5 B USD in trading volume²⁰. In 2023, the trend shifted towards a significant decline which led to a drop to $30B in exports and a $70B in imports²¹, thus a noticeable trade imbalance between the Netherlands and China with the Netherlands importing more and more (for the latest data: see Centraal Bureau voor Statistiek (CBS) database²²). However, this data is somewhat overestimated due to the “Rotterdam effect”, which implies that the statistics is inflated due to the port of Rotterdam importing roughly 60-70% of all goods in the European Union²³ and being accounted for as extra EU-imports. The ongoing debate on China’s trade surplus with the rest of the world is due to “problematic” overcapacity (also a low domestic consumption) and “unfair” trade practices such as subsidizing state-owned enterprises (SOE - government entity to partake in commercial purposes)²⁴.

Furthermore, the investment landscape between the Netherlands and China has experienced ups and downs. According to China-Briefing, platform for business intelligence on China, there are around 4000 Dutch enterprises in China including ING, Rabobank, Philips, Friesland Campina etc. with a total investment of $25B as of 2021²⁵. These companies are aligned with the investment preferences and priorities of the Chinese investors and policymakers, which are focused on key areas such as agriculture, renewable energy, life science, and high-tech. Although the foreign direct investment (FDI) in China made a deep plunge in 2023 due to large capital outflow of multinationals with a bearish view on China. Conversely, the Chinese foreign direct investment in the Netherlands has fluctuated in recent years. The Netherlands is a preferred investment location in the European Union due to its strategic value as a port connecting to Europe, innovation hub of high-tech and knowledge economy. The Chinese FDI in the Netherlands reached $29B in 2021, however Dutch businesses are treading more carefully due to regulatory scrutiny and business risks of cyber espionage, forced technology transfer and the dependence of supply chain risks. Therefore, the technological de-risking²⁶ of the Netherlands to bolster national security and maintain its competitive advantage and edge in today’s world is justified in my humble opinion.

Figure 2: International trade between China and Netherlands - import and export. Source: CBS

Figure 3: Annual flow of FDI from China to the Netherlands between 2012 - 2022. Source: Statista

Future Outlook of Dutch-Chinese Relations

Looking ahead, China and the Netherlands both face difficult challenges domestically and internationally. On the one hand, The Netherlands has problems related to rising housing prices, climate change concerns and immigration policy issues²⁷. On the other hand, China is dealing with its household consumption, income inequality, youth unemployment, aging population, ecological concerns, a debt fueled property sector, a underdeveloped capital market, a trade war with Europe, and tensions in the US-China relations²⁸. It would be a good idea to help each other out with one’s own obstacles. Thus, both countries can still learn from each other, for example, the fast-paced competitive innovation and adaptability to market trends of young entrepreneurs on the digital ecosystem from China vis-à-vis the ability of the Western management style and strategy to spur creativity and innovation in small and medium-sized enterprises (SME) and multinationals (MNC) from the Netherlands.

The Dutch-Chinese relations could improve on the condition that both countries, while safeguarding their national interests, strive for a win-win situation instead of playing a zero-sum game through cultural exchange, mutual understanding, knowledge sharing and ultimately value creation. Future growth and technological innovation can be assured through trade missions, strategic partnerships and international collaboration. Notwithstanding, a new coalition dominated by the far-right (PVV - Geert Wilders) with Prime Minister Dick Schoof at the helm has risen to power while Mark Rutte is moving to Brussel to assume his next position as the Secretary General of the NATO. Also, the upcoming elections in the United States in November with Trump likely as president, after surviving an assassination attempt, will definitely set a new unpredictable and polarizing undertone for the world order. This will again put pressure on the Dutch relationships with China's ‘peaceful development’. Therefore, time will tell whether the politicians and citizens of the Netherlands and China will make the right choices.

By Tjan Ho Lai

1 https://www.politico.eu/article/dont-meddle-with-our-tech-access-chinas-xi-warns-dutch-pm-rutte/

2 https://www.bloomberg.com/news/articles/2022-07-05/us-pushing-for-asml-to-stop-selling-key-chipmaking-gear-to-china

3 https://ec.europa.eu/commission/presscorner/detail/en/speech_23_2063

4 https://www.eeas.europa.eu/eeas/eu-china-relations-factsheet_en

5 https://www.atlanticcouncil.org/blogs/energysource/without-tariffs-the-eu-faces-a-flood-of-chinese-imports-of-the-new-three/

6 https://chinaobservers.eu/why-the-eu-must-keep-talking-with-china-about-russia/

7 https://www.telegraaf.nl/video/2011651762/china-staat-duidelijk-aan-de-kant-van-rusland

8 https://www.nrc.nl/nieuws/2024/06/11/china-vrienschappelijke-relatie-tussen-china-en-nederland-ondermijnd-door-incident-met-marineschip-a4856014

9 https://www.volkskrant.nl/nieuws-achtergrond/volkskrant-verslaggever-mikpunt-van-chinese-intimidatie~b496aebc/

10 https://etnc.info/reports

11 https://www.clingendael.org/sites/default/les/2024-07/ETNC2024_National_Perspectives_on_Europes_De-risking_from_China.pdf