Ireland: Searching for autonomy amid US-China rivalry

You are reading the Ireland chapter from the ETNC Report 2024 "National Perspectives on Europe’s de-risking from China". Go back to the main page.

The economic risks China pose to Ireland are primarily related to Chinese inbound foreign direct investment (FDI) and Ireland’s goods exports to China. These are set to be addressed through FDI investment screening and export control mechanisms. The US-China rivalry is both an economic and a geopolitical risk to Ireland. There are both US and Chinese companies located in Ireland and trading globally. US-China competition makes Ireland vulnerable to tit-for-tat actions.

XIII In recent years, significant developments have thrust China and the associated risks of Ireland's engagement with it squarely into the spotlight. Among these are Richard O’Halloran’s three-year “exit ban” on leaving China, the illegal establishment of a Fuzhou Overseas Police Service Station in Dublin and the risks related to Ireland’s immigration investor programme, the overwhelming majority of successful applications for which have been Chinese nationals, as well as Ireland’s lack of a formal national security clearance system.

Ireland’s de-risking approach predominantly revolves around its aim to maintain a balanced economic relationship and ensure that Irish and Chinese companies have fair opportunities to expand into each other’s markets, in order to foster mutual economic interdependence rather than one-sided dependency. This standpoint paired with past risks has led to an accelerated alignment with EU policy, leaving Ireland’s approach to China more securitised than before.

In light of these issues, and following President of the European Commission Ursula von der Leyen’s March 2023 speech on “de-risking” the EU’s relationship with China, Ireland’s Tánaiste (Deputy Prime Minister), Micheál Martin, echoed von der Leyen’s sentiments while discussing Ireland’s need to derisk relations with China in May 2023. Although mainly rhetorical, the speech signalled Ireland’s alignment with the EU’s de-risking approach to Brussels, Beijing and Washington.

Thus far, however, de-risking strategies have not been a prominent topic in political discussions in Ireland, leaving its definition and implications largely unexplored in the public discourse. More broadly, the absence of debate on China, and on de-risking in particular, stems from the prioritization of domestic issues and of other foreign policy issues such as the wars in Ukraine and Gaza.

The risks in the relationship with China fall broadly into two categories: economic and geopolitical, with a heavy emphasis on the former. In the economic sphere, two main subcategories emerge: Inbound foreign direct investment (FDI) and trade in goods with China. Economically, de-risking must be contextualised within Ireland’s economic model of attracting FDI and the foreign relationships that it has fostered as a result, notably with the US. The dominance of ten large foreign-owned multinational companies in Ireland's corporation tax revenues poses significantcompany- and sector-specific risks. This is probably what led Ireland to diversify its FDI portfolio to attract FDI from China. Chinese companies are following US ones to Ireland’s shores, with Shein, Temu and TikTok among the most recent arrivals.

There was no public mention of de-risking by any Irish politician during the visit to Ireland of China’s Premier, Li Qiang, in January 2024. The Chief Executive of Ireland’s Industrial Development Agency (IDA) portrayed Ireland in the Chinese state media as “engaging openly and collaboratively” with China and pointed out the “unique relationship between China and Ireland, demonstrating the willingness of both parties to actively contribute”.

The IDA has been successful at securing inbound FDI from China. There have been greenfield investments in recent years by Wuxi Biologics, ByteDance’s TikTok and PDD Holdings’ Temu. Ireland’s Revenue Commissioners collected €22.7 billion in corporation tax in 2022, an almost 50% increase on 2021, and foreign-owned multinationals provided 86.5% of this revenue. Despite diversification of Ireland’s FDI portfolio, new risks are emerging from such investments. The case of Shein is a recent example.

Despite a litany of scandals that included a documentary exposing the low wages and long working hours of Shein garment workers in Guangzhou, garments made with cotton from Xinjiang shipped to the US by Shein, and products found to contain levels of hazardous chemicals over the limits set by EU regulations, the Irish government and the IDA welcomed the decision by ultra-fast fashion retailer Shein to establish their Europe, Middle East and Africa headquarters in Dublin in May 2023.

According to a Sunday Times article, the Department of Enterprise has claimed that the IDA carried out due diligence before taking Shein on as a client and that Shein had no manufacturers in the Xinjiang region. When asked about what due diligence had been undertaken to assess Shein, however, the IDA said discussions between it and the company were confidential. Since access for independent auditors to conduct human rights due diligence in the region has become practically impossible,the IDA cannot have verified that there is no forced labour in Shein’s supply chains. This poses a risk for Ireland’s government by not only contravening its “values-based trade and investment policy”, but potentially violating soon-to-be European law.

Shein’s Infinite Styles Ecommerce Co. Limited is registered in Ireland for tax purposes but ultimately owned by a Cayman Islands-based firm. In 2022, it recorded more than €4.58 billion in sales through its Irish entity but profits of just €45.7 million, meaning that it only had to pay €5.7 million in corporation tax. Ireland is a prominent hub for multinational profit-shifting. Nonetheless, it is incumbent on the Irish tax authorities to ensure that company financial records and tax filings are accurate, and that the correct amount of corporation tax is paid. Equally, the potential risks and impact of any coordinated tax reform must be considered when it comes to understanding Ireland’s FDI model and exchequer revenue sources.

Whether TikTok is divested from or banned in the US, will have knock-on effects in Ireland, where the ByteDance company’s European headquarters is located.320 This may be especially painful for a government that at one point lobbied the European Commission not to ban the app from the devices of EU officials. 

Certain US companies with large manufacturing operations in Ireland that trade with China may also pose risks for Irish policymakers. The data shows that companies such as Intel and Pfizer comprise a large percentage share of Ireland-China trade in goods. 

US restrictions on the export of chips to China, Chinese import substitution guidelines on Intel chips, and legacy chips subsidy in China all pose risks to the export of chips from Ireland to China. Integrated circuits or semiconductors accounted for 63% of Ireland’s total exports of goods to China in 2022, at a value of more than $8.7 billion, while for 2023 this share declined sharply by 23%, valuing almost $5 billion. Most were from Intel’s fabrication plant in Leixlip. China was Intel's largest market in 2023, providing 27% of its revenue. The sale of semiconductors to China has a major impact on Ireland’s China trade surplus and corporation tax revenue. The squeeze that US and Chinese tech policies could have on the sales of Intel and Analog Devices could put Irish jobs and corporation tax revenues at risk. Intel employs over 6,000 people in Ireland. In 2022, ICT manufacturing brought in €3.8 billion in corporation tax revenue (16.7% of the total), and Intel is likely to have made a major contribution to this.

In addition, there is a critical strategic dependence on imports for certain active pharmaceutical ingredients in the European and Irish pharmaceutical industries, where a major proportion of the ingredients come from China and China has a majority global market share.

Even though agricultural exports represent a modest proportion of Ireland’s total exports to China – a 4.4% share in 2022 – they still have significant indigenous economic value. Unlike the revenues of multinationals, this income remains within and benefits the Irish economy. A recurring risk in Ireland's economic dealings with China pertains to Irish beef exports. Having gained access to the Chinese market, Irish beef suffered intermittent suspensions in 2020 and 2023 linked to an agreed export protocol. While the Chinese market offers lucrative opportunities for Irish producers, its unpredictability in granting access has led to a volatile business environment. The suspension in 2020 lasted for 30 months but in 2023, coinciding with Li Qiang’s arrival in Ireland, the Chinese authorities reopened the market to Irish beef after only a 10-week suspension.330 Whether the Chinese authorities followed its protocol or made an exception to align with Li’s visit is unclear. Despite being a win for Irish diplomacy, however, the unpredictable nature of access for Irish agricultural products poses a risk to the sector’s long-term stability and growth.

Ireland’s plans to decarbonise and green its economy give it a key interest in continuing to foster economic relations with China, given the latter’s leading position in green industrial technology innovation, such as photovoltaics, electric vehicles and new developments in energy such as green hydrogen. In 2022, Ireland recorded the lowest percentage of renewable energy use among the 27 EU member states, at just 13.1%. It relies heavily on fossil fuels, which made up 85.8% of its total primary energy requirement in the same year. The government aims to source 80% of its electricity from renewable sources by 2030. Its prioritisation of renewable energy means it is likely to seek cooperation in this sector with China, a country that plays a pivotal role in the global photovoltaic and wind turbine markets. Ireland could therefore become reliant on China as the largest exporter of such key products. 

In the long term, industrial policies such as the EU’s Important Projects of Common European Interest (IPCEI), which support the reallocation of economic resources to identifying and developing new strategic sectors, will become increasingly important. Despite flying in the face of its FDI model, access to state aid could enable the Irish economy to gradually move away from trade dependencies and perhaps from the risks associated with an FDI-based economy. 

In the political sphere, the Irish government sees China’s position on Russia’s war in Ukraine as an important factor in EU-China relations.335 China’s tacit pro-Russia stance on the war raises security risks for Europe and Ireland, as China’s economic lifeline to Russia protects Moscow’s ability to continue its invasion, affecting European and Irish security interests.

There are major barriers to de-risking in the current economic and geopolitical context. The increase in corporation tax revenue – predominantly from non-Irish multinationals, including Chinese newcomers – is a disincentive for the Irish government to rigorously de-risk for fear of scaring companies away. 

Moreover, the US-China rivalry and tensions impact a country that is host to both US and Chinese companies. Irish leaders have received several warnings about China from the highest levels of the US government over the years. More recently, the senior vice president for Europe at the US Chamber of Commerce stated that if Ireland and the EU do not have the “tools in place” to respond to “anti-competitive practices” from China and are not prepared to use them as needed, US politicians might look less favourably on the relationship between Ireland and the US. Statements like these are unhelpful to Irish and EU regulators. In particular, their contradictory nature seeks to apply one standard to Chinese companies in Ireland and the EU while at the same time criticising European business regulations, which are likely to be the very same as the de-risking tools being called for. 

Wuxi Biologics, a company with assets in Ireland valued at more than €2 billion, has been named a “biotechnology company of concern” in the US Biosecure Act. US intelligence officials have alleged in a classified briefing to US Senators that its sister company, Wuxi AppTec, also present in Ireland, transferred US intellectual property to Beijing without consent. If there were to be a US ban on the Wuxi group, some analysts claim that Ireland, in its neutral position, would stand to benefit from a potential redirection of planned US investments. However, such political decisions in the US could have implications for the Irish-based Chinese pharmaceutical company, if US political pressure spilled over into Ireland. 

The previously mentioned technological self-reliance strategies of China’s government paired with its pushback on perceived US intervention also act as barriers. De-risking appears to be an issue of concern for Beijing. Foreign Minister Wang Yi has asked that Chinese companies in Ireland be treated fairly. China’s ambassador to Ireland has warned that “if [Ireland] seeks to ‘de-risk’ from China, it will turn its back on opportunities, cooperation, development and the future”. Even the visit of Li Qiang can be understood as an intervention regarding the proposed de-risking policy to make clear China’s sensitivity to the pressure put on Ireland-based Chinese companies and other Ireland-based multinational companies trading with China, as well as to the pressure for new Irish laws to tighten controls on exports with potential military uses and investments that could pose security risks.

Divisions between government departments also act as barriers to de-risking. During the drafting of Ireland’s telecommunications law, disagreements arose between the Department of Communications, on one side, with the Department of Enterprise, Trade, and Employment (DETE) and the IDA, on the other. In the end, DETE and the IDA got their way and the perceived damaging tag “high-risk vendor” was replaced with “relevant vendor” in the law, of which Huawei is believed to be the main target. As a result, it may be easier for those hit by the restrictive measures to try to limit the fallout for other parts of their business.

Ireland’s government, in common with many others, has not published a list of critical sectors where disruption would have a major impact on the Irish economy. Implementation of the de-risking tools emanating from the EU appear to be the only evidence that the Irish government has taken any concrete steps to address the EU’s Economic Security Strategy. For example, Ireland’s exposure to inbound FDI from China of over €9 billion has apparently created 5,000 jobs. The recently legislated FDI screening mechanism will come into force in the third quarter of 2024, allowing for a review of investments from non-EU countries that involve sensitive technologies and activities.

Equally, the data shows Ireland’s high exposure in terms of its exports to China. In 2021, exports to China represented close to 2.5% of Ireland’s gross domestic product. This increased to 2.61% in 2022. Typically, a country can choose between several strategies to diversify its exports and reduce its dependency on a single market.

However, any such strategy would be rendered null and void for Ireland because a large value share of its exports to China is derived from specific products and manufacturers. Instead, in alignment with EU regulations, Ireland has updated its Control of Exports Act to regulate the export of controlled items, particularly those that can be used for both military and civil purposes Ireland’s highest value export to China – electronic integrated circuits – could fall under the act in Ireland if they are considered "dual-use items”. 

Whether further concrete steps to address de-risking take place will depend mainly on three factors: First, whether new risk events unfold similar to those that have occurred recently; second, whether further pressure is applied to the Irish government by Washington to address perceived risks; and third, whether the European People’s Party lead candidate and key proponent of de-risking, Ursula von der Leyen, returns to head the EU's executive branch following the June European elections.

You were reading the Ireland chapter from the ETNC Report 2024 "National Perspectives on Europe’s de-risking from China". Go back to the main page.