Europe can no longer afford supply chain dependence on China


The ripples from China’s power crisis have well and truly reached Europe, with the continent’s automotive industry at risk of paralysis due to magnesium shortages. The source of the problem is clear. Beijing’s crackdown on energy-intensive industries has curtailed emissions-heavy magnesium production. Because China is responsible for a staggering 87% of global magnesium production, the slump in Chinese production has had worldwide impact. Europe, particularly severely dependent on China for supplies for the key mineral, has been disproportionately hit. Import costs for magnesium have soared in recent months, with European consumers now forced to pay up to $14,000 per metric tonne—if they can source the mineral at all.

Worryingly, this is just the latest example of how China’s control over key supply chains is threatening Europe’s security. From the spectre of a food crisis as China muscles in on Europe’s sources of staple crops to the much-discussed semiconductor chip shortage, Europe is confronted by a plethora of challenges from a resurgent Beijing. How many more supply chain crises does Europe have to endure before policymakers in Brussels elaborate a comprehensive strategy to wean Europe off its dependence on China for key goods?

Magnesium shortage leaves Europe on edge

The fact that China supplies some 95% of the European market’s demand for magnesium—and the wide range of industries for which the element is a vital commodity have combined to make the shortage a serious problem, with industries across Europe sounding the alarm. WVM, a German non-ferrous metal industrial association, recently warned that Europe’s current magnesium stocks will likely be depleted by the end of November.

There’s not much hope that the supply crunch will ease up soon, either—despite reports of talks between the European Commission and China over potential ways to alleviate the pain, China’s state-run tabloid Global Times recently declared that it’s “unrealistic” for China to meet Europe’s magnesium demand in the short term, and Morgan Stanley cautioned that “with limited vessel availability and shipping times of at least two months, Europe could see limited [magnesium] supply until May.” This would have a “catastrophic effect” on European manufacturing, industry groups have warned. The magnesium supply crisis, a group of industry associations recently advised, “if not resolved, threatens thousands of businesses across Europe, their entire supply chains and the millions of jobs that rely on them.”

The magnesium shortage seems to have taken Europe by surprise. Even as Europe has grown increasingly aware of the dangers of leaving key industries beholden to China and has begun building domestic supply chains for critical minerals such as lithium and nickel, magnesium seems to have slipped beneath the radar—in sharp contrast to places like the United States, whose diversified mix of magnesium suppliers has somewhat shielded it from the current squeeze.

Looming food supply crisis

A similar story has been plaguing Europe’s food security, where policymakers have long insisted that food security is no longer an issue in the EU, and that the bloc should focus more on crafting a more sustainable agricultural sector than on ensuring adequate food supplies. But this has always been a contentious stance—the EU’s own Agriculture Commissioner noted in September that if implemented in the wrong way, the bloc’s flagship Farm to Fork strategy, which imposes additional ecological requirements on European agricultural output and imports, could harm European food production.

This could spark a serious problem, given that China is steadily horning in on some of Europe’s main sources of essential crops. Corn is one of the most troubling examples. Beijing has been buying up record amounts of corn this year as the country attempts to rebuild its hog herd after a wave of African swine fever devastated its ranks in 2019. Heavy rains which delayed China’s own domestic corn harvest and raised concerns over potential mycotoxin contamination have only intensified Beijing’s demand for the staple crop—and in order to fulfil this demand, it’s dipping into Europe’s own supply.

Ukraine is by far the EU’s most significant supplier of corn—over the past decade, however, it’s also become China’s predominant supplier of the staple grain. After Kyiv signed an unusual loan-for-crops accord with Beijing in 2012 that saw gave cash-strapped Ukraine access to $3 billion in credit lines in exchange for supplying China with roughly 3 million tonnes of corn each year, Ukraine quickly cemented its place as China’s top corn supplier, with Ukrainian goods quickly making up around 90% of Beijing’s total imports of the grain.

Reports have surfaced of even more unusual arrangements that China has apparently floated to corner the Ukrainian grain market. The South China Morning Post reported that China had sealed a deal to farm some 3 million hectares of Ukrainian land—an area roughly the size of Belgium and a startling 9% of Ukraine’s total arable land—to feed China’s growing population. Though the Ukrainian firm involved denied the reports, it’s clear that Beijing is going to ever-greater lengths to secure food supplies for its population and livestock. If Europe does not act proactively to safeguard its own sources of staple crops, European consumers are likely to suffer higher prices and supply squeezes on these essential goods.

Europe needs broad-spectrum strategy to shore up supply chains

Brussels has already faced something of a reckoning as the coronavirus pandemic laid bare the dangers of overreliance on Chinese manufacturing. The plans which policymakers have sketched out to curb Europe’s dependency, however, have so far been too narrowly conceived, focusing on a limited number of sectors such as semiconductor components and pharmaceutical ingredients.

As the worrying prospects of a shortage of staple crops and essential minerals like magnesium have shown, however, the problem is far broader. With rising energy costs and commodity shortages putting further pressure on global supply chains, Europe needs a comprehensive strategy to ensure its continued access to vital resources.

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