SHENZHEN – Even as China and the US roll back tariffs and other trade salvos amid a 90-day truce, there is one powerful source of leverage that Beijing appears to be retaining: the control of its exports of critical minerals, including rare earths.
China’s Commerce Ministry said on May 12, the same day that details of the US-China agreement were announced, that strengthening export controls of strategic mineral resources was crucial to national security.
A ministry spokesman said that smuggling activity had been detected after Beijing implemented export controls, and that China had launched a campaign to crack down on such moves.
Also that day, a social media account affiliated with state broadcaster CCTV published a post titled “China’s rare earth export controls continue”.
Beijing had in April slapped export controls on some rare earth minerals, a move seen as part of its retaliatory measures against the US’ tariff hikes that were announced that same month.
These curbs, which have come into focus given China’s near chokehold on the supply of rare earths, are Beijing’s latest restrictions on the outflow of such minerals used in everything from semiconductors and green technology to the defence industry. Since 2023, China has imposed export controls on a growing number of critical minerals and their products.
Just as the US has been squeezing China with its restrictions on the sale of advanced chips and chip-making equipment to the Asian economic powerhouse, Beijing sees access to these strategic substances as a lever it can use.
They are “a rare point of control and dominance that China has, and can use without causing too much pain to itself”, said Mr Jacob Gunter, lead analyst at the Mercator Institute for China Studies in Berlin.
How is China controlling rare earths?
Rare earths are a set of 17 elements in the periodic table, which bear esoteric names like yttrium and dysprosium. Although obscure-sounding, these substances are used in all manner of technology, from smartphones and TVs to airplanes and nuclear reactors.
China dominates the world’s rare earth supply chain, mining almost 70 per cent of the global output of these critical minerals.
But more importantly, it processes some 90 per cent of the global supply of rare earths, rendering them usable. This is a costly, complicated and highly pollutive task which developed countries have shied away from, giving China dominance over the supply of these strategic resources.
On April 4, China imposed export controls on seven rare earth elements and their related products, adding them to its list of controlled goods that could have military applications and thus had to be regulated.
They include samarium, whose highly heat-resistant magnets are used in missile guidance systems, and scandium, used in armoured vehicles and jet engines.
The controls take two forms, and are not a flat-out ban. First, they require licences before the rare earths can be shipped out. Exporters would have to furnish the end-users’ details in their applications, which would be approved at Beijing’s discretion within 45 working days.
Second, they prohibit companies named on China’s export control list from receiving shipments of these items, along with other controlled goods.
Although the licensing requirement applies to all shipments worldwide, observers believe that the objective is more narrowly aimed.
“The primary target of this was the US defence industry,” said Mr Thomas Kruemmer, director of Ginger International Trade and Investment, a trading and advisory firm focused on rare earths.
A calculated reprieve?
Following the trade war countermeasures’ temporary wind-down, which both sides had committed to doing by May 14, there appears to be some reprieve for American rare earth importers.
China announced that it was lifting curbs for 90 days on 28 American companies to which the export of controlled items, including the rare earths, would otherwise have been prohibited.
However, Beijing has not formally walked back its licensing requirement, which allows it oversight of these rare earths’ outflow.
Analysts whom The Straits Times spoke with think it unlikely that China will completely reverse its export licensing requirement on rare earths.
“The controls serve as a clear reminder to the US of its dependence on China,” said Dr Jost Wubbeke, managing partner at research consultancy Sinolytics. “Keeping this in place helps China maintain leverage in future negotiations.”
Mr Gunter believes that China would keep the rare earths on its list of controlled goods and simply approve more licences to export to US customers.
Keeping the licensing regime would retain a “credible threat” that the supply might be disrupted very suddenly, if Beijing stops issuing licences, he said.
It is the spectre of an export halt – rather than an outright ban – that would be more valuable in negotiations with the US, he added.
After all, a freeze in Chinese rare earth exports would only push the US to build up its own rare earth production capacity, at which point “Beijing loses this powerful card that it can play”, he said.
- Joyce ZK Lim is The Straits Times’ China correspondent, based in Shenzhen.
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