The European Commission will propose legislation requiring EU companies to diversify sources of key supplies after leaders warned businesses were de-risking too slowly from China, reported Reuters.

Commission president Ursula von der Leyen said the measure was needed to rebalance the relationship, citing China's restrictions on rare earth exports last year. She added the law might prove redundant if companies stepped up efforts themselves.

EU leaders meeting in Brussels agreed the executive should also engage trading partners on global macroeconomic imbalances and review whether new trade measures are required.

The bloc's goods trade deficit with China now totals about EUR1 billion (US$1.15 billion) per day. European Council president Antonio Costa described the imbalance as unsustainable and said engagement with Beijing was vital.

Belgian Prime Minister Bart De Wever said leaders also agreed to unite in the event of retaliation from third countries, noting that vulnerability varies across member states.

Diplomats said views among the 27 EU members are converging on the need to address the deficit, which has worsened as transatlantic tariffs reduced access to the US market.