China is scooping up supply chain information as part of its trade restrictions. Europe lags behind in economic intelligence, but there is a way to start closing this gap with a low-cost, low-bureaucracy, high-impact step.
Problem
The EU is set to fall behind China in economic intelligence. The Chinese leadership is deliberately using new export restrictions on rare earths and permanent magnets it put in place in April to collect in-depth information about European companies, their customers and their dependencies. The Chinese Ministry of Commerce requires Western companies to hand over granular data on suppliers, technical processes, end-users and allows on-site inspections for verification. Due to China’s near monopoly on these goods, companies are willing to provide whatever it takes to get approvals. This gives Chinese authorities a detailed picture of Western corporate vulnerabilities: supply chain chokepoints, business relations and customers. That will be more information than any European government has about its own companies. This asymmetric information advantage puts Europeans on the back foot in protecting security, competitiveness, and intellectual property.
Solution
While Europeans are determined to cut red tape and reduce the bureaucratic burden, more information is still needed to bridge the gap between what governments need to know and what they actually know. To address the issue, policymakers could use the opportunity of China’s overreach and apply the old principle of the “carbon copy”, the pre-digital method used to create identical copies of paper documents. Any documentation that European companies have to provide for the arduous licensing process with the Chinese Ministry of Commerce, they should also share with their governments. National authorities can then store and analyse the information for their own assessments of supply chain vulnerabilities and critical dependencies. No extra reporting, no extra work for the companies, and while not perfect, still significantly more insight for Europeans.
For this to be feasible, European policymakers need to create a legal framework for sensitive data sharing between businesses and their governments. The Japanese Act on the Protection and Utilization of Critical Economic Security Information from 2024 could serve as an inspiration. Companies in Europe have been hesitant to share information with authorities out of legitimate concerns over security and competitiveness. However, it will be hard to argue that it is safer to share sensitive information with the Communist Party than with their own government.
Context
The EU is working on an overhaul of its economic security strategy by the end of 2025; the German government is doing the same and is debating the role the new national security council can play in its new comprehensive coordinating function. In both contexts, the question of how to improve economic intelligence gathering and sharing within and between governments will be key. Establishing a regulatory basis and identifying low-cost, low-bureaucracy efforts to improve Europe’s understanding of its own vulnerabilities should be at the heart of the approach.
About the author:
Dr Janka Oertel is a distinguished policy fellow with the European Power programme at the European Council on Foreign Relations.