The Chinese government's recent actions are set to strengthen its already dominant position in the global market for rare minerals, essential for advanced technologies.
In recent weeks, the government has imposed new restrictions that complicate the purchasing process for foreign companies, particularly those in the semiconductor sector, seeking rare earth metals and minerals primarily extracted and processed in China.
Currently, China produces nearly all of the world’s supply of these critical materials, and the new regulations further entrench this market supremacy. As of October 1, exporters are required to provide detailed accounts of how rare earth metal shipments are utilized in Western supply chains, giving Beijing greater control over distribution to foreign companies.
Additionally, China is increasing its corporate control over mining and production. In a little-noticed deal, the last two foreign-owned rare earth refineries in China are being acquired by a state-owned enterprise that already operates other refineries within the country.
China's recent initiatives also encompass other chemical elements necessary for semiconductor production. On September 15, the Ministry of Commerce limited exports of antimony, which is used in semiconductors and military applications. This follows previous export controls on gallium and germanium, both critical for chip manufacturing.
National security measures have intensified, with rare earth mining and refining being classified as state secrets. Recently, two industry managers were sentenced to 11 years in prison for leaking information to foreign entities.
The competition for these materials reflects the broader technological rivalry between China and the United States, particularly in the semiconductor sector. Both nations are imposing export controls while seeking to establish self-reliant supply chains with trusted partners.
A White House statement highlighted concerns about China's market control, indicating that it poses risks to the economic and national security of the U.S. and its allies.
Industry experts have likened the potential for supply disruptions to a looming threat over the market. China's dominance in the processing and refining of essential minerals is exacerbated by its history of restricting exports during geopolitical tensions, such as the 2010 embargo against Japan.
The Chinese government argues that its actions are aimed at conserving resources and enhancing national security. Rare earth materials are integral to various technologies, including military equipment and renewable energy systems, with demand projected to increase significantly in the coming years.
One notable example is dysprosium, a rare earth element crucial for high-performance magnets and advanced semiconductors, which is predominantly produced in China. The impending acquisition of the last foreign-owned refineries in China by a state-controlled company underscores the tightening grip of the Chinese government over this supply chain.
Efforts are underway in other countries to establish alternative supply chains. Companies in Belgium, Australia, and the United States are working to refine dysprosium and other rare earths, but face challenges due to the high costs and complexities involved in establishing viable operations outside of China.
Despite attempts to diversify, competition with Chinese firms remains challenging, primarily due to lower production costs and advanced extraction technologies. The U.S. and European universities are lagging in training engineers for the rare earth industry, which further diminishes their competitive edge.
As countries strive to diversify their supply chains, the complexities and high costs of producing rare earths outside of China continue to pose significant barriers to achieving self-sufficiency in this vital sector.