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Xi Jinping and Former Prime Minister of the Netherlands, Mark Rutte. Source: Wikimedia Commons (The file is licensed under the under the Creative Commons Attribution 2.0 Generic license. No modifications to the original image were made)
Until recently, relations between the Netherlands and China could have been described as cordial and robust with many areas of cooperation including agriculture, human rights, culture, arts and media, and science and innovation. Last year, the Netherlands was the largest importer from China with 117 billion euros. It was also one of the largest exporters to China with trade accounting for 22 billion euros. It also had the largest trade deficit at 95 billion euros.
However, despite stable relations, in 2019, the Netherlands marked a shift from its China strategy, naming it The Netherlands China: A New Balance. Under this policy, the Netherlands departed from its previous approach of attracting Chinese investments and adopted a more restrained defensive action plan. Although the government wished to continue bilateral cooperation in key areas, it also showed signs of caution in trading advanced technologies. The policy aligned with the European Union’s increasing skepticism towards Beijing and the US’ economic and political pressures. In 2023, the Netherlands imposed export controls on lithography machines, which attracted some Chinese criticism. A year later, it decided to further expand the scope of export control measures, further deteriorating Sino-Dutch trade relations.
ASML Holding, the largest supplier to the semiconductor industry, Source: Wikimedia Commons (This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license. No modifications to the original image were made).
Trade relations marred by security threats
The Netherlands, also referred to as the digital gateway to Europe, is considered one of the best and most highly advanced countries in the world in terms of IT and digital infrastructure. It ranks 8th on the Global Innovative Index and 5th on the World Competitiveness Ranking and hence, it offers a lucrative business investment climate, from start-ups to multinational enterprises. The Netherlands is also home to ASML Holding N.V., which is arguably the biggest company operating in the development, production, marketing, and sale of advanced semiconductor hardware. It has a monopoly over the supply of lithography machines, which are used to manufacture computer chips. China, on the other hand, assumes the role of being its third largest consumer and thus serves as an important partner in the bilateral relations with the Netherlands. However, given its technical prowess and skilled manpower, in terms of academics and professionals, it becomes a vulnerable target for cyberattacks and web espionage. As a result, the Sino-Dutch trade and economic relations are increasingly affected by security concerns.
In April 2023, a Dutch intelligence and security service agency known by its acronym AIVD alleged China to be the biggest threat to the Netherlands’ economic security with China using commercial espionage, illegal covert investments, and exports to target Dutch experts, scientists, and companies. In its annual assessment report, AIVD and the Military Intelligence and Security Service (MIVD) jointly investigated the national security threats posed by China. It discovered with ‘high confidence’ that China had attempted to gain access to Dutch technological and trade secrets to improve its technical know-how, with the ASML being a major target. Furthermore, they discovered that China was also trying to obtain confidential corporate information for the benefit of Chinese companies and government institutions. Though Beijing denied these accusations, AIVD alleged Chinese spies committed a cyberattack compromising a sensitive military force network.
Apart from security-related concerns, the Hague has acknowledged that since China is not a market economy or a democracy founded on the principles of the rule of law, it conflicts with the values upheld by them. So, Amsterdam wishes to end the unfair trading practices and wants a more balanced and dignified relationship with the country. It has made itself clear in the policy document that it did not wish to become dependent on China for key technologies and critical raw materials. It also wanted to protect its intellectual property and wanted manageable investment risks to prevent unwanted technology transfer. Lastly, it was very skeptical about the risks of technological leaks such as those in environmental technology.
The US factor
Though the Netherlands has its share of apprehensions concerning China, the geopolitical conditions have significantly shaped their trade trajectory. The US-China trade war has severely impacted the Netherlands. China is aware of its dependency on the Western front for technologies such as semiconductors and seeks to develop advanced technology and emerge as a leading country in the industry. However, the US feels threatened by China’s vision. Given the USA’s position in the supply chain, it can and has put pressure on countries like the Netherlands and Japan to restrict China’s access. In 2023, the US pressured the Dutch government to curtail China’s acquisition of high-level technology. This included not issuing export licenses to ASML to deliver semiconductors to undisclosed Chinese customers. The Dutch high-tech company is the world’s sole producer of extreme ultraviolet (EUV) machines, capable of manufacturing the next generation of advanced semiconductors. China, on the other hand, lags far behind in the technology of lithography, and therefore, a limit to semiconductors’ production would result in a disruption in its goal of self-sufficiency.
China, keeping in view its dependency, aims to become a world leader in the field of technology by 2025. China launched its industrial policy ‘Made in China 2025’ to make the country the global manufacturing hub of the world. This has been done to catch up with the West and ultimately surpass them. Made in China 2025 is a ten-year plan that includes AI, telecommunications, advanced robotics, next-gen IT, electric vehicles, etc. The main agenda is to reduce the dependence of Beijing on foreign technology and equip China with high-tech factors in the global market. The US, under Trump’s administration, had seen this not only as a violation of international regulations but also as a potential military threat. Warnings were given by the US that they would not supply the American inputs needed to produce ASML semiconductors. This has since led to a rise in the volatility of the global value chains of semiconductors.
What lies ahead?
A shift in the perceptions can be observed. Earlier economic interdependence was perceived as being beneficial for the countries involved as it not only gave a boost to those countries but also reduced the possibility of geopolitical conflicts. Now it is seen as a security risk as seen in the case of the Netherlands which is walking on a tightrope. On the one hand, it has to protect its domestic security and appease international players such as the US and the EU. On the other, China serves as one of its largest markets. A recent meeting was held between Chinese Premier Xi Jinping and Dutch Prime Minister Mark Rutte amid rising tensions of export restrictions wherein the former emphasised for removal of artificial barriers to entry and called for deeper trade cooperation. At present, the future of trade relations between the two states seems to hold promise however careful considerations will have to be kept in mind for the Netherlands regarding its security concerns and for China regarding its economic aspirations.
- How can the Netherlands balance its economic interest in China while safeguarding its security?
- Can further export controls on China disrupt the semiconductor industry?
- Can the US-China trade war lead to the deterioration of their relations with other countries?
Further Readings
- Allen, G. C. & Benson, E., 2023. Clues to the U.S.-Dutch-Japanese Semiconductor Export Controls Deal Are Hiding in Plain Sight, Washington, D. C.: Center for Strategic & International Studies.
- Okano-Heijmans, M. & Kranenburg, V., 2024. Technological de-risking in Netherlands-China Relations, Wassenaar: Clingendael, Netherlands Institute of International Relations.
- Šestić, R., 2023. Assessing Dutch Agency within the Chip War Rivalry: The Case of ASML in a Changing Geopolitical World, s.l.: EUI School of Transnational Governance.
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