Ahead Today
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Market Highlights
China significantly expanded its export controls of rare-earths and other critical minerals in a whole host of directives on 9 October, in what seemed to be a meaningful expansion of some of its ongoing measures to exert greater control over the critical mineral supply chain. Many of these measures only come into effect either in November or December, and could be used in part as negotiation and leverage ahead of an expected Trump-Xi meeting in the APEC Summit.
We think these measures are potentially very impactful depending on how they are enforced, and markets have not fully digested them, including the possible implications to global supply chains, geopolitics, and how the US could eventually respond. There are a couple of important points from the range of announcements:
First, China is now officially asserting extra-territorial jurisdiction over foreign-made products that contain or are manufactured using Chinese-origin rare-earth materials. In particular, overseas exporters of items that use even traces of certain rare earths sourced from China (0.1% of total value) will now need an export license. This is reminiscent or even a mirror of the US’ Foreign Direct Product Rule (FDPR) used most extensively in the semiconductor supply chain. For context, China has been expanding its legal toolkit over time to better legislate its controls over critical supply chains, including through the adoption of the 2020 Export Control Law.
Second, the new rules have also expanded to include restricting the transfer of rare-earth-related technologies and know-how, beyond specific products. Effective immediately, China now requires licenses from the Ministry of Commerce for exports of technology related to rare-earth mining, processing, manufacturing, and recycling, and restricts foreign entities from accessing rare-earth technologies even within China’s borders.
Third, China also announced new controls on lithium-ion battery materials – including cells, battery packs, key cathodes, synthetic graphite anodes, and the equipment to make most of them, expanded controls on “superhard materials” – such as diamond cutting tools to an existing list that already includes other materials, and also added 14 “anti-drone technology” companies to the Unreliable Entity List, effective 9 November.
Fourth, China’s Ministry of Commerce said that licenses for military applications will not be approved in principle.
Of course, there are many unanswered questions still, not least the ability of China to effectively enforce its export controls extra-territorially in practice. In addition, it is also unclear how the combination of these measures could spill over into global supply chains, and with that how the US may respond in reaction to these new announcements, which could exacerbate any potential supply chain disruptions
