EU to propose diversification law to drive de-risking from China

By Philip Blenkinsop and Charlotte Van Campenhout

BRUSSELS, June 19 (Reuters) - The European Commission will propose a new law requiring EU companies to diversify their sources of key supplies, although it may prove surplus to requirements if they proactively de-risk from China, its president Ursula von der Leyen said.

European Union leaders meeting in Brussels agreed on Friday that the EU executive should enter dialogue with the bloc's main trading partners on "global macroeconomic imbalances" as well as reviewing whether new trade measures are needed.

The focus was on China, although the world's second-largest economy was not named in the conclusions of their summit.

Von der Leyen said the Commission will propose a measure to promote diversification because businesses had de-risked at far too slow a pace. The issue came to a head last year when China exploited its dominance in processing of critical minerals by placing export restrictions on rare earths.

The best-case scenario was that companies stepped up their efforts to de-risk, suggesting the measure might then be redundant, von der Leyen said.

"There is a need for improvement. We've seen the figures, they speak for themselves, and we have to rebalance our relationship," she added.

When the G7 issued a joint statement on Wednesday on stepping up cooperation to reduce critical mineral dependencies, China urged the G7 nations to respect market economy principles and international trading rules rather than favouring "small cliques".

EU diplomats say there is a gradual convergence of views among the 27 EU members that there is a problem with the goods trade deficit with China, which now amounts to some €1 billion ($1.15 billion) per day.

The situation is more critical as transatlantic tariffs have diminished access to the U.S. market.

European Council President Antonio Costa, who chaired the summit, said engagement with China was vital, describing a €1 billion per day trade deficit as "simply unsustainable".

"We cannot continue to raise this issue without any concrete results. And until now, unfortunately, China didn't deliver," Costa said.

Belgian Prime Minister Bart De Wever said a further item the EU leaders had agreed was to unite in the event of retaliation from third countries.

"Retaliation will not affect everyone equally. Not everyone is equally vulnerable. Some are highly vulnerable. Everyone is vulnerable to some extent, including us," he said.

(Reporting by Philip Blenkinsop and Charlotte Van Campenhout; Editing by Alexander Smith)