A view of mining facilities at MP Materials' rare earths mine in Mountain Pass, California, U.S., January 30, 2020.
Steve Marcus | Reuters
China has tightened export controls on rare earths and related technologies while banning its citizens from engaging in illegal mining abroad, adding new tensions to a sector central to its geopolitical influence.
Foreign entities must now obtain a permit from Beijing to export products containing more than 0.1% of domestically produced rare earths or manufactured using Chinese extraction, refining, magnet production or recycling technology, the Commerce Department said Thursday.
To prevent the “misuse” of rare earth metals in the military and other sensitive sectors, companies with ties to foreign militaries or on export control or watch lists will not be licensed, the Commerce Department said. Applications for items that could be used for weapons, terrorism or other military purposes will also be rejected.
The latest move marks a “major upgrade to rare earth export controls,” expanding restrictions from just raw materials to intellectual property and technologies, said Dan Wang, China director at Eurasia Group. China added several rare earths and related materials to its export control list in April.
These restrictions could further increase other countries' dependence on Chinese knowledge while supporting Beijing's efforts to move its own industries up the value chain, Wang added.
Chinese citizens are also banned from supporting overseas activities related to rare earth mining and magnet production without Beijing's permission.
The new rules for the export of rare earths will come into effect on December 1, while those for technologies and labor will take effect immediately, according to official statements.
Applications for the export of rare earth metals used in the production of semiconductors of less than 14 nanometers, advanced memory chips, semiconductor production or testing equipment or artificial intelligence with potential military applications will be assessed on a case-by-case basis, the ministry said.
The measures are mainly aimed at the defense sector, said George Chen, partner at The Asia Group, as part of Beijing's efforts to eclipse US defense capabilities.
Rare earth metals are critical to high-tech industries, including automotive, defense and semiconductor industries. Closer access to rare earths has disrupted international supply chains that were caught in the crossfire between the US and China this year.
“Beijing has realized it has influence in this sector and is clearly not shy about using it,” said Wendy Cutler, senior vice president at the Asia Society Policy Institute and a former U.S. trade negotiator. The move could put pressure on Washington to make further concessions in the ongoing talks, such as tariff cuts or relaxed US export controls.
Negotiating positions
China accounts for about 70% of global supply and has repeatedly used the critically needed minerals as a bargaining chip in trade negotiations.
The latest restrictions came just weeks before a possible meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. The two leaders are expected to meet in person on the sidelines of the Asia-Pacific Economic Cooperation forum in Gyeongju, South Korea, in the last week of October.
Although China has been silent on future meetings, Trump had also said he would visit China early next year and that Xi would come to the US at a later date.
The new announcement could be seen as “a series of bargains” that Beijing wants to make before the next round of major trade negotiations, said Chen of The Asia Group.
“The Chinese side is becoming more and more experienced in dealing with their counterparts and they know what their American friends want,” Chen added.
Since late last year, China has tightened restrictions on rare earth exports, including requiring proof that they will not be used for military purposes. Beijing began issuing single-use export licenses in May following a trade truce with Washington.
Although China's official data shows exports of rare earth magnets have recovered in recent months, progress appeared uneven. The European Chamber of Commerce said in a study published last month that Beijing's tight grip had cost at least one member “millions of euros”, while other members cited inconsistent procedures for obtaining export approvals.
A Chinese ministry spokesperson said Thursday that there would be certain exceptions under the new rules, including exports for medical emergencies or disaster relief. A “transition period” will also allow companies to honor existing contracts and meet compliance requirements.
The transition period will likely soften some short-term impacts on companies, Eurasia's Wang said, noting that “similar to how the US technology export ban to China left room for US technology companies to lobby and apply for approval – most of them did get approval.”
“It will give China more power than just a blunt ban,” Wang said.
— CNBC's Evelyn Cheng contributed to this story.
