As China widens its export control net, what’s next for rare earths?

After months of tenuous peace between the US and China – featuring multiple rounds of talks and extensions of a temporary trade truce – recent events had markets and observers briefly worried over a return to the dangerous escalatory spiral averted earlier in the year.

Several punitive measures have been employed or threatened by the world’s two largest economies as they attempt to gain the upper hand in their broader rivalry, but last Thursday’s flurry of announcements from China’s Ministry of Commerce took many by surprise – particularly the expansive export controls imposed on rare earth elements, essential raw materials in the manufacture of hi-tech products.

Here, we unpack the details of these restrictions, why they were introduced, what elements and goods are involved and what the new rules mean for the global supply chain.

Why did China expand its rare earth export controls?

In the immediate aftermath of last week’s announcement, speculation was rife over the cause. Some said it was related to Pakistan’s exports of rare earth elements to the US using Chinese equipment and technology.

But Beijing denied this on Monday, saying Pakistan has been forthright over its mineral trade with the US and dismissing the theory as an “unfounded” attempt to “sow discord” between the traditional Asian allies.

In official communications, China has said the recent move was intended to “refine its export control framework” in light of geopolitical turmoil and the potential uses of rare earths in military equipment.

According to a research note published on Monday by financial services company Gavekal, the move was a response to what Beijing viewed as violations of the tacit consensus both sides had reached after talks in Madrid last month – most notably, the expansion of the US Department of Commerce’s Entity List to cover a wider range of Chinese companies under the list’s strict sanctions.

South China Morning Post