China tightens export controls on rare earth metals used for chipmaking — country now requires exporters to detail how they use restricted materials

The New York Times reports that China is deepening its hold on rare earth minerals by implementing new export restrictions and expanding state ownership of production facilities. This move strengthens its near-monopoly on these resources, creating substantial hurdles for foreign tech companies dependent on these materials and increasing their prices.

China now requires exporters to submit comprehensive reports detailing how rare earth shipments are used along supply chains. Effective October 1, 2024, this policy enables greater control over who can access these vital resources. Companies outside China, especially in sectors like semiconductors and defense, are directly impacted, as the country supplies almost the entire global market for materials like gallium and germanium.

The restrictions have been expanded to include antimony, essential for semiconductors and military equipment. They are part of broader controls on minerals like gallium, crucial for advanced power ICs, and germanium, crucial for radio applications. In addition, China now treats rare earth mining and refining information as a state secret, and the government recently sentenced two managers to years in prison for leaking industry data.

China has also taken steps to bring foreign-owned rare earth refineries under domestic control, which aligns with its strategy. A Canadian firm, Neo Performance Materials, recently agreed to sell an 86% stake in one of China’s last foreign-held refineries to Shenghe Resources, a state-linked Chinese company. This purchase consolidates China’s control over materials like dysprosium, which is used for advanced capacitors. China produces 99.9% of the world’s dysprosium, primarily at a single refinery in Wuxi, near Shanghai.

The U.S. and its allies face vulnerabilities due to their reliance on Chinese rare earths, which are used for a variety of applications, including military hardware. Attempts to diversify the supply chain are underway: Countries like Australia and Belgium are investing in refineries, and new projects are planned in the U.S. and Malaysia. However, challenges such as cost, regulatory hurdles, and long setup times remain significant.

China’s dominance stems partly from its technological edge in refining processes, enabling it to produce rare earths at a lower cost and higher purity than other countries. Chinese universities play a critical role in training specialists, giving the country a deep pool of skilled workers. In contrast, Western institutions offer limited courses, placing them behind in expertise.

With its moves to control the market and maintain technological superiority, China is positioning itself to influence the global tech industry for the foreseeable future. While some Western companies, such as Solvay and MP Materials, are working to establish alternative sources, they face substantial competition from China’s advanced production systems, leaving them reliant on Chinese supply for years.