The European Union is reportedly preparing rules that would require companies in strategic sectors to reduce reliance on Chinese suppliers, marking a further shift from voluntary “de-risking” towards binding industrial policy.
The European Union is drawing up plans that would require companies in selected strategic sectors to source critical components from several non-Chinese suppliers, as Brussels seeks to reduce its exposure to China in areas considered important to industrial resilience and security.
According to reporting on the planned rules, companies in sectors including chemicals and industrial machinery could be required to buy key inputs from at least three suppliers. The proposed framework would also limit the proportion of components sourced from a single supplier to around 30 to 40 per cent.
The measures, first reported by the Financial Times, would represent a significant escalation in the EU’s approach to China. Until now, Brussels has largely framed its China strategy around “de-risking”, a term intended to distinguish Europe’s position from full economic decoupling. The proposed rules suggest that the Commission is considering a more interventionist approach, in which supply-chain diversification becomes a legal obligation rather than a corporate choice.
The immediate concern is China’s dominance in key supply chains, including critical minerals, rare earths, electric-vehicle components, semiconductors and inputs used in military technologies. European officials and manufacturers have become increasingly concerned that concentration in Chinese supply chains leaves European production vulnerable to export controls, price pressure or political coercion.
The issue has moved beyond ordinary trade policy. Europe’s dependence on Chinese processing capacity for critical minerals has direct implications for defence production, energy transition technologies and high-end manufacturing. If a European factory depends on a single Chinese supplier for a component that cannot quickly be replaced, a disruption can become an industrial, security and political problem at the same time.
Brussels is also responding to the wider imbalance in trade with China. EU Trade Commissioner Maroš Šefčovič is reportedly considering additional trade measures, including possible punitive tariffs on Chinese goods, as the bloc faces a large daily trade deficit with China. The EU has repeatedly argued that Chinese state support and industrial overcapacity have distorted competition in sectors where European producers are under pressure.
The planned rules are expected to be discussed as part of an EU debate on China relations later this month. According to the same reporting, the proposals could be taken forward ahead of possible endorsement by EU leaders in June. The Commission has not publicly confirmed the full content of the measures, and the final design may change before formal presentation.
For European companies, the impact could be considerable. Diversification is often easy to support in principle, but expensive and difficult to implement in practice. Many supply chains have been built around China not only because of cost, but because Chinese suppliers often combine scale, technical capacity, logistics networks and processing infrastructure that alternative suppliers cannot immediately match.
A legal requirement to diversify could therefore raise costs, complicate procurement and force companies to restructure long-established sourcing arrangements. Smaller firms may face particular difficulty if they lack the purchasing power to secure alternative suppliers in tight global markets. Larger firms may be better placed to absorb the shift, but even they may face shortages in sectors where China’s role is especially dominant.
The policy also carries diplomatic risk. Beijing has already criticised earlier EU moves targeting Chinese suppliers in critical sectors. In April, China warned that it could respond if the EU did not revise proposed technology and industrial rules affecting high-risk suppliers. That dispute centred on cybersecurity-related provisions, but it forms part of the same wider argument over whether the EU is using security concerns to restrict Chinese companies.
The EU’s position is that dependency itself can become a vulnerability. The argument has gained force since Russia’s full-scale invasion of Ukraine exposed the cost of strategic reliance on hostile or politically risky suppliers. Russian gas dependence became the most visible example, but the same logic now informs debates over batteries, rare earths, telecommunications, solar equipment and industrial machinery.
The United States is also moving in a similar direction, particularly in defence supply chains. Separate reporting has shown that US defence groups have been pressing for delays to a ban on Chinese rare earth magnets in military contracts, underlining how difficult it can be to remove Chinese inputs from sensitive procurement even when the political decision has already been made.
For Brussels, the challenge is to reduce strategic exposure without damaging the industrial base it is trying to protect. If the rules are too weak, they may do little to reduce reliance on China. If they are too rigid, they could increase costs for European manufacturers already facing competition from the United States and Asia, as well as high energy and regulatory costs at home.
The proposal therefore points to a broader change in EU economic thinking. Trade openness remains part of the EU’s identity, but the bloc is increasingly treating supply chains, industrial capacity and market access as instruments of security policy. The debate is no longer only about cheaper imports or export opportunities. It is about whether Europe can retain enough control over critical inputs to sustain its industries, protect its infrastructure and act independently in a period of sharper geopolitical competition.
