SINGAPORE — Following a closely watched visit to Beijing, China that ended on Monday (June 19), United States Secretary of State Anthony Blinken said that his country was seeking to "de-risk and diversify" from China, but not to "decouple" from it.

His remarks echoed those made by various officials in US President Joe Biden’s administration in recent months, following growing concerns that the tense relations between the two nations could lead to decoupling.

The new rhetoric is in contrast to the stance taken by Mr Biden's predecessor Donald Trump, whose term was widely remembered by sanctions and raised tariffs against the giant Asian economy.

Mr Trump repeatedly claimed that the US could afford to decouple, or completely cut off economically, from China.

Mr Biden had largely kept up with his predecessor's hardline policies against China, only in recent months adopting a softer rhetoric of de-risking and diversifying, which is generally understood to mean sourcing key supplies for sensitive industries from outside China while still largely maintaining economic relations with it.

In China’s view, however, such comments from officials in the US are merely a play on words or diplomatic jargon, with a commentary by the official Xinhua News Agency on June 10 describing this as “just old wine in a new bottle”.

TODAY looks at what the de-risking and diversifying strategy entails, how it may differ from decoupling and what it may mean for countries like Singapore.

WHAT IS DE-RISKING AND DIVERSIFYING?

In a speech on European Union and China relations in March, European Commission President Ursula von der Leyen said that de-coupling from China “is neither viable – nor in Europe’s interest”. 

Instead, she called for a “de-risking” of the European Union’s relationship with China.

Among other things, this would entail the establishment of restrictions on trade in highly sensitive technologies, she was reported by various media as saying.

Various officials from the Biden administration have since then used similar terms to describe the US' intended relationship dynamics with Beijing.

After the Group of Seven (G7) leaders' three-day summit in May where leaders agreed on a shared approach to "de-risk, not decouple" economic engagement with China, Mr Biden told the media that this means "resisting economic coercion together and countering harmful practices that hurt our workers".

"It means protecting a narrow set of advanced technologies critical for our national security,” he said. 

The leaders’ communique stressed that their policy approaches “are not designed to harm China” or aimed at thwarting its economic progress. 

“At the same time, we recognise that economic resilience requires de-risking and diversifying,” the statement read.

“We will reduce excessive dependencies in our critical supply chains.”

This desire to reduce dependency came after some countries faced harsh economic setbacks following diplomatic spats with China, said one expert, Professor of International Security and Intelligence Studies John Blaxland of The Australian National University's College of Asia and the Pacific.

Speaking to national broadcaster CNA, he gave examples of South Korean conglomerate Lotte’s exit from China after suffering massive losses following a 2017 diplomatic spat, as well as Beijing’s trade sanctions on Australian exports amounting to A$20 billion (S$18.2 billion) a year since 2020.

Dr Chong Ja Ian, a political scientist from the National University of Singapore, told TODAY that de-risking and diversifying essentially means for the US and its allies to be less dependent on the China economy, “especially for key elements of its supply chain”. 

DOES IT REALLY DIFFER FROM DECOUPLING?

Dr Chong added that this differs from the Trump-era decoupling which supposedly aimed to separate the US and China's economies, which was “not practically possible except at great cost”. 

Dr Oh Ei Sun, a senior fellow with the Singapore Institute of International Affairs, agreed that the two strategies are in fact different, with de-risking being a "soft form" of decoupling.

De-risking, he said, recognises that China, with its renowned efficiency and huge market, is simply too tempting and difficult for Western businesses to wean from.

“So governments can only urge businesses to also invest a bit elsewhere," said Dr Sun. 

China, however, remains unconvinced that there has been a material change on the US’ stance towards it.

“A change in words does not mean a difference in action. In essence, de-risking is hardly different from decoupling,” read another commentary on Xinhua in May following the G7’s announcement.

A day after the group’s communique was issued, China barred operators of key domestic infrastructure from purchasing products from Micron, citing security risks. It had neither provided details on what risks it had found nor what Micron products would be affected.

The move against the biggest US memory chipmaker was also widely seen as a tit-for-tat in an escalating chips war, after Washington in October enacted exports ban to curtail China’s access to advanced semiconductor technology, including chips and the tools to make them.

Meanwhile, China's foreign minister Qin Gang was reported as saying in May: “If the EU seeks to decouple from China in the name of de-risking, it will decouple from opportunities, cooperation, stability and development.”

DE-RISKING BETTER THAN DECOUPLING FOR S'PORE IN THE LONG TERM 

Mr Andrew Yeo, head of Singapore at strategic advisory firm Global Counsel, said that neither decoupling nor de-risking “has been comprehensively defined".

“But for countries like Singapore, the key is to look beyond diplomatic semantics and focus on its multilateral trade interests,” he said.

Ms Selena Ling, head of treasury and research at OCBC Bank, said that while the impact on Singapore arising from such a shift in the US' strategy is difficult to ascertain as of now, the de-risk and diversify strategy is the current status quo, where foreign direct investment is increasingly headed towards Southeast Asia.

This comes as businesses or economies are expanding their operations or investments to other places, while still maintaining their presence in Greater China, she said. 

On the other hand, a decoupling strategy would be more likely to result in a more fragmented world economy where countries, including Singapore, may have to end up picking sides, she added.

Dr Chong noted that the impact of such de-risking and diversification may vary from economy to economy, with states that receive redirected investments and trade from the US and its allies potentially benefiting.

Given that Singapore has been acting as an economic conduit for the US, EU, the United Kingdom, Japan, China, Southeast Asia and South Asia since China’s opening in the late 1970s, de-risking and diversification would likely reduce some of the gains for Singapore in the short to medium term, said Dr Chong.

Currently, richer economies come to Singapore to manufacture goods that are then shipped to China for assembly and such volumes could be affected.

However, he envisions that the Singapore economy will adjust to find other opportunities over the longer term. 

“This is different from the potentially more significant disruption from decoupling that could prove more disruptive to the global economy, including Singapore," he said.

Dr Oh added: “Singapore is an international financial and trading hub, and so it will continue to play its crucial role regardless of who the trading partners are.”

Agreeing, CIMB Private Banking economist Song Seng Wun added that the diversification may "potentially mean more business opportunities for Singapore... purely as a trading nation".

As businesses try to diversify away from China, chances are they would not entirely remove their presence from the country given its vast market, he said.

Instead, Mr Song raised the possibility of supply chains running in parallel: One within mainland China that supplies to and source within the country, while those outside of China trade through Singapore. 

On the other hand, should the major economies pursue a decoupling strategy instead, it would lead to lower trading volumes, and countries including Singapore may end up having to pick sides, he added.

Deputy Prime Minister Lawrence Wong had recently expressed concerns over the potential repercussions of de-risking if it is taken too far.

Speaking at the annual Nikkei forum Future of Asia days after the G7 summit, Mr Wong acknowledged why companies or countries would like to diversify and not be over-reliant on a single supplier for key resources.

“But it is hard to see how de-risking, at its current ambition and scale, can be strictly confined to just a few ‘strategic’ areas without affecting broader economic interactions,” he said. 

“And if de-risking is taken too far, it would prompt reactions and unintended consequences. Over time, we will end up with a more fragmented and decoupled global economy.”