Context: 

In a recent statement issued at the end of the leaders’ summit in Hiroshima, Japan, G7 countries said they would build economic resilience for themselves, based on a strategy of “diversifying and deepening partnerships and de-risking, not decoupling”. 

What does “de-risking” mean?

• De-risking, a finance concept that is a diplomatic buzzword currently, refers to a reduction of reliance on China in the economic sphere while not turning inwards or trying to prevent Chinese growth. 
  • Decoupling is used here as an alternative to an economic boycott.
• The US State Department describes de-risking as “the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk”. 
• Simply put, de-risking is to move business away from areas that are considered risky in terms of the returns they could generate.
• Back in 2016, the World Bank had said that global financial institutions were increasingly terminating or restricting business relationships with smaller local banks in some regions in order to “de-risk”, as it is often perceived that such banks would not be able to pay back loans.
• In the context of China, de-risking can be interpreted as a reduction of the reliance on China in the economic sphere — for the supply of materials or as a market for finished goods — so that potential risks to trade and disruption of supply chains are reduced.

News Source: Indian Express

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