[Big read] How China weaponised its rare earth monopoly

(Edited and refined by Candice Chan, with the assistance of AI translation.)

China exports goods to every corner of the world. Yet for certain strategic materials, the Chinese government not only restricts their export but increasingly wields them as geopolitical weapons.

Late last month, China’s Ministry of Commerce placed 20 Japanese entities on its export control list, prohibiting the export of any items that could potentially be used for military purposes, “to curb Japan’s attempts at ‘remilitarisation’”. This marked China’s second round of export controls targeting Japan this year and underscored Beijing’s growing use of export controls as a geopolitical tool.

Japan is not the only target. The European Union (EU), which is currently locked in a trade impasse with China, is also concerned that Beijing could play the rare earths card. According to the Global Times, China and the EU held intensive trade consultations at the end of June, during which one of the EU’s principal demands was for Beijing to address the bloc’s concerns over rare earth imports.

Originally introduced as a national security management measure, export controls have evolved over nearly three decades into one of China’s key instruments for managing geopolitical rivalry and strategic competition.

According to China’s official definition, export controls are measures that prohibit or restrict the transfer of dual-use items, military and nuclear goods, and other products, technologies and services related to safeguarding national security, protecting national interests, and fulfilling international non-proliferation and other obligations.

Today, however, the public is more familiar with export controls in the form of the US’s restrictions on advanced semiconductor equipment and technologies, or China’s export curbs on rare earths and other critical minerals.

From passive retaliation to proactive strategy

In an interview with Lianhe Zaobao (LHZB), Professor Wu Xinbo, dean of the Institute of International Studies at Fudan University, outlined three major phases in the evolution of China’s export controls.

According to Wu, the origins of China’s export control regime can be traced to the 1990s. As the US rallied international support to prevent the proliferation of weapons of mass destruction, it pushed countries to establish export controls on nuclear-related items. To meet its international non-proliferation obligations, China responded by introducing regulations focused on military and nuclear-related materials, laying the foundation for its export control regime.

The second phase began after the 2010 collision between Chinese and Japanese vessels near the Diaoyu Islands (known as the Senkaku Islands in Japan). Beijing temporarily tightened rare earth exports to Japan. However, this rare earth card remained an isolated case and did not lead to significant policy or institutional changes.

The third phase emerged after Joe Biden became US president in 2021 and steadily tightened restrictions on semiconductor and technology exports to China, prompting Beijing to retaliate. Beginning in 2023, China successively placed rare earths, gallium, germanium, graphite and other critical materials under export controls, sending shockwaves through global supply chains.

Over the past two years, China’s export controls have expanded to cover an increasingly wide range of critical minerals and extended further into key supply chain nodes. Following several revisions to the export control list, 12 of the world’s 17 rare earth elements are now subject to strict Chinese export controls.

Meanwhile, Beijing has reinforced its export control regime by strengthening legislation and enforcement. According to Beijing-based Han Kun Law Offices, Chinese authorities issued 238 publicly disclosed administrative penalty decisions relating to dual-use export controls last year, a 140% increase from the 99 cases recorded in 2024.

Wu concluded that China’s export control regime has developed rapidly in recent years for two reasons. On the one hand, it serves as a countermeasure against US trade pressure and technological containment. On the other, Beijing has recognised that it holds leading positions in certain strategic sectors and is actively transforming these advantages into important tools of foreign policy.

“Take the export controls on Japan. They are intended to curb the remilitarisation tendencies of Prime Minister Sanae Takaichi’s government, reflecting a more proactive approach.”

Chen Yang, director of the Japan Research Center at Chinese think tank Haiyi Institute, noted that compared with the export control list announced in February, the June list expanded to include Japanese defence research institutions and entities linked to Mitsubishi Heavy Industries and the broader defence industrial chain, demonstrating broader coverage, greater precision and sustained pressure.

“China has gradually transformed export controls against Japan from temporary retaliatory measures into institutionalised and normalised policy.”

Jason Bedford, a visiting senior research fellow at the East Asian Institute (EAI) of the National University of Singapore (NUS), observed: “These controls are still formally framed as national security measures, and in many cases there is a genuine dual-use or military-security rationale. But in practice, they are now also being used as a broader instrument of economic statecraft.

“The important change is that China is no longer only restricting specific goods in a narrow legal sense. It is increasingly targeting strategic bottlenecks in global supply chains where Chinese inputs are difficult to replace.”

US’s technological blockade vs China’s supply chain chokepoints

Drawing on years of research into rare earths, Bedford observed that China’s export controls are mostly appearing where three conditions are present: first, where China has dominant upstream or midstream capacity; second, where the controlled input is difficult to substitute or qualify; and third, where the downstream application has strategic relevance, particularly in defence, energy transition, semiconductors, aerospace, drones, or advanced manufacturing.

He added that while both countries now use export controls as instruments of strategic competition, Beijing is not simply copying the US model, but is developing an emerging model that is more of a bottleneck-control model.

According to data from the United States Geological Survey, China produced 270,000 tonnes of rare earths in 2025, accounting for 69.4% of global output. More importantly, over 90% of the world’s rare earths undergo chemical processing in China. For scarcer medium and heavy rare earths such as dysprosium and terbium, Chinese refineries account for as much as 99.9% of global refined supply.

Medium and heavy rare earths command higher value because of their scarcity and critical applications in aerospace, defence and other advanced technologies. In October last year, China expanded export controls to cover all medium and heavy rare earth elements while introducing an “extraterritorial jurisdiction” provision. Under this rule, China may restrict products manufactured in third countries if they contain Chinese-origin rare earth components or controlled core materials.

Bedford believes this marks a fundamental shift in focus. The issue is no longer simply whether a US company buys directly from China, but whether any part of its global supply chain depends on Chinese-origin controlled inputs.

“Export controls are no longer just defensive. They are becoming a way to shape the pace, cost, and geography of strategic industrial development.”

Xu Tianchen, a senior economist at the Economist Intelligence Unit, likewise argued that the core objective of US export controls is to remove critical technologies, equipment and software controlled by the US and its allies from China’s high-end industrial supply chains.

China, by contrast, uses resources and supply chains as leverage. The essence of its strategy lies in exploiting its advantages in critical minerals, materials processing and selected manufacturing segments to increase uncertainty over competitors’ access to strategic inputs.

“Another important difference is that US rules are highly complex but also thoroughly documented. Companies typically establish compliance systems around Export Control Classification Numbers (ECCNs), entity lists, end-use requirements and licensing policies. China’s rules have improved rapidly in recent years, but many reviews still depend on administrative discretion, the policy environment and diplomatic considerations. Such ‘tactical ambiguity’ actually amplifies the effectiveness of China’s export controls.”

Export controls from materials to technology

Beyond shifting from passive defence to proactive action, China has also expanded export controls from raw materials to advanced technologies. In the second half of last year, it successively brought certain advanced lithium battery technologies and technologies spanning the entire rare earth supply chain under export controls.

In March this year, the Bulletin of the Chinese Academy of Sciences published a joint research report by four research institutions, including the Chinese Academy of Engineering’s Institute of Strategic Studies on Engineering Science and Technology Innovation, in which researchers proposed a technology export control list covering 63 technological fields. Technologies designated as top-tier export restrictions included satellite quantum secure communications, electromagnetic catapult systems and metal recovery technologies for rare earth tailings.

A month later, China’s National Development and Reform Commission halted the acquisition of Manus, an artificial intelligence (AI) start-up founded in China, by US technology giant Meta. The move was widely interpreted as one of China’s first applications of export controls over AI algorithms.

Xu argued that geopolitical competition is, to some extent, a contest between controls and counter-controls.

“The more capable a country is of imposing controls on others while avoiding being constrained itself, the greater its strategic advantage. China therefore needs to continuously expand the list of strategic items and technologies that can be placed under export controls, thereby increasing its bargaining chips.”

How long can China play the rare earths card?

The rare earths card has become one of China’s most potent weapons during the US-China trade war over the past couple of years.

In retaliation against steep US tariffs, Beijing imposed export controls on seven categories of medium and heavy rare earth materials in April last year. Within weeks, American carmakers reported supply disruptions and warned of production cuts. In October, China expanded the controls to cover five additional medium and heavy rare earth elements. It was only after Chinese and US leaders met later that month that Beijing agreed to suspend implementation of the new export controls for one year in exchange for Washington lowering some tariffs on Chinese imports.

By contrast, after Japanese Prime Minister Sanae Takaichi said at the end of last year that “a Taiwan contingency is a contingency for Japan”, Beijing has tightened export controls against Japan on two separate occasions. Chinese customs data show that exports of rare earth magnets to Japan in May plunged 34.6% from April to their lowest level since May last year. Nevertheless, Takaichi has not retracted her remarks.

Wu believes Japan possesses larger rare earth stockpiles than the US and can therefore hold out for longer.

“When Trump encountered China’s rare earth restrictions, the US was completely unprepared. Japan, however, began building up its rare earth reserves more than a decade ago.”

Japan’s preparations while the West boosts investment

The 2010 maritime dispute with China exposed Japan’s vulnerability to rare earth supply disruptions. Since then, Tokyo has pursued multiple strategies to reduce its dependence on Chinese critical minerals.

Statistics released by Jiji Press in January showed that while nearly 90% of Japan’s rare earth imports came from China in 2010, the proportion had fallen to 66% last year. Lin Dawei, a professor at Soka University, expects Japan’s long-term dependence on Chinese rare earths to continue declining as supply sources diversify.

Domestically, Japan has promoted research into reducing rare earth usage. According to Kyodo News, Japanese automotive parts giant Astemo developed a new electric vehicle motor using iron as its primary component last October. Nissan’s latest generation of electric vehicles also uses around 90% less heavy rare earth material than its first-generation models.

Internationally, Japan has vigorously pursued “resource diplomacy” by investing overseas and participating in joint development projects to diversify its rare earth supply. Since February this year, the Takaichi administration has concluded cooperation agreements on critical minerals with Vietnam, Australia, India and Canada, while also planning to participate in rare earth mining, processing and refining projects in Greenland.

Following China’s rare earth export restrictions on the US, Washington has also stepped up efforts to strengthen domestic and overseas supply security. A report by the Center for Strategic and International Studies (CSIS) stated that the Trump administration has committed more than US$7.3 billion to these efforts.

The Australian government has recently invested more than US$8.5 billion in 15 rare earth projects and expanded its list of critical minerals to attract additional strategic resource investment. The EU, meanwhile, has set a target of achieving at least 10% self-sufficiency in rare earth mining by 2030.

When China announced a new round of rare earth export controls in May last year, Australian mining company Lynas revealed that it had become the first company outside China to produce processed heavy rare earth products.

Bedford noted that the West and Japan are reducing dependence on China at the mine and basic processing level. Japan has probably done the best job institutionally, while the EU’s policy response has been slower, more bureaucratic, and less coordinated.

“The EU has strong policy targets, but execution remains the problem.”

Even for Japan, however, the costs of adapting remain significant. Takeshi Higashifukazawa, a senior economist at Mizuho Research & Technologies, estimated that the 2010 rare earth embargo cost Japan the equivalent of 0.9% of its gross domestic product. He believes the economic impact of the latest restrictions could prove even greater.

China’s advantage is shifting downstream

Chen Yang argued that what Japan needs is not merely access to rare earth ore but also capabilities in rare earth separation, purification and magnet production. China’s greatest strength lies precisely in its integrated processing and manufacturing ecosystem.

“Even if countries such as Australia can supply the raw ore, many downstream stages of the supply chain still cannot avoid reliance on China.”

Bedford likewise stressed that China has not lost its dominance in the rare earth sector; rather, that dominance is evolving. “The most difficult dependencies are now further downstream, where China’s advantage is based not only on capacity, but on decades of operational know-how.”

He thinks meaningful reduction in dependence is possible within five years for some parts of the chain, especially light rare earth feedstock, neodymium-praseodymium and some magnet capacity. However, reducing dependence for downstream processes such as ultra-high-purity refining, recovery of critical rare earths and metallisation are “five-to-ten-year problems”.

Xu believes that regardless of whether China imposes export controls, other countries will continue accelerating supply chain restructuring and developing alternative industrial chains.

“Against this backdrop, China may actually become more determined — not more cautious — in deploying export controls. If it does not use these tools now, by the time other countries achieve technological breakthroughs, Beijing may no longer have the opportunity to do so.”

This article was first published in Lianhe Zaobao as “中国出口管制反守为攻 地缘博弈对手如何拆招？”.

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