Beijing Tightens Grip on Rare Earths With Sweeping Export Curbs

China Extends Its Reach Abroad, Putting Pressure on Global Tech Supply Chains

Beijing — China just fired a major shot in the tech trade war. On Thursday, the Ministry of Commerce rolled out two new export control rules that stretch Beijing’s authority far beyond its borders. Together, they threaten to shake up supply chains for electric vehicles, wind turbines, defense systems, and some of the world’s most advanced semiconductors.

The measures, effective immediately, require licenses for almost all rare earth technology exports. What’s more, they claim oversight of products made anywhere in the world if they use even a trace of Chinese rare earths or know-how. For an industry where China refines nearly 90 percent of the world’s supply and makes most of the magnets that keep modern tech running, that’s no small move.

Analysts say the timing isn’t random. With high-level diplomatic talks looming, Beijing seems determined to use its rare earth dominance as leverage in wider trade and technology negotiations.

Two Announcements, One Purpose

The first order, known as Announcement 62, bans exports of rare earth know-how unless companies secure a license. And “know-how” here is defined broadly. It includes everything from design files and process codes to smelting techniques and recycling methods. Even transferring such knowledge within China to foreign firms now counts as an “export.”

The second rule, Announcement 61, goes into effect December 1. Modeled loosely on U.S. export restrictions but flipped on their head, it requires foreign companies to obtain Chinese approval before exporting any product containing Chinese rare earths worth 0.1 percent or more of the final item. That’s an extremely low bar. It also applies if Chinese technology was used in manufacturing, regardless of whether the finished good contains any actual Chinese materials.

A Threshold So Low It Catches Everything

That 0.1 percent cutoff isn’t just technical—it’s strategic. It ropes in nearly every modern product, from smartphones and car sensors to industrial motors. Imagine one small magnet in a larger device. That alone could trigger a license requirement.

For multinational firms, this creates a compliance nightmare. Many will now have to secure approval from both Washington and Beijing, often for the same shipment. Military applications are automatically refused, while semiconductors at the cutting edge—14 nanometers and below—or advanced memory chips face strict reviews. Only humanitarian uses, like medical or disaster relief, get fast-tracked. Even then, companies must file reports within ten business days.

Markets on Edge

The immediate concern is chaos in supply chains. Manufacturers are expected to rush orders before the December deadline, pushing up prices for key materials like dysprosium and terbium. Some analysts predict price swings of more than 15 percent in specialty magnets over the next year.

Companies may also need more working capital, since licensing delays could stretch lead times from weeks to months. For an industry already under pressure, this is another heavy burden.

Western nations have been scrambling to diversify. Firms in Australia, the U.S., and Europe are building rare earth facilities with government backing, but catching up to China’s scale and expertise will take years.

Beijing’s Strategy

Behind the dry language of “export controls” lies a clear strategy. China wants to protect intellectual property it views as vital to national security, while nudging global manufacturers to keep their high-value production inside its borders.

The rules also aim to stop what Beijing calls “leakage”—foreign firms walking away with sensitive technology through joint ventures, service contracts, or consulting deals. By treating even maintenance manuals as controlled exports, China shuts another back door.

And geopolitically? It gives Beijing bargaining power. Analysts believe licensing could morph into a “managed trade” tool, where approvals for civilian use are granted but come wrapped in paperwork, conditions, and politics.

A World Splitting in Two

The global manufacturing map may soon look very different. Companies face a stark choice: keep Chinese content in their products and accept Beijing’s oversight, or build entirely “China-free” supply chains. The second option means redesigns, costly testing, and in many cases, weaker performance.

Take electric cars. The powerful neodymium magnets that drive efficient motors mostly come from China. Carmakers must now decide whether to navigate Chinese licenses or switch to alternatives that add bulk, cost, or inefficiency. Wind turbine makers face the same dilemma.

Investors Take Note

For investors, the rare earth space just got a lot more interesting. Firms with even modest non-Chinese processing or magnet capacity suddenly look valuable, since compliance and security matter more than cost. Experts think G7 governments could pour more than half a billion dollars into such projects by mid-2026.

Chinese companies may tighten their grip on the home market too, though Beijing is likely to control prices to keep strategic industries competitive. Recycling, or “urban mining” from old electronics, could also see a boost as manufacturers hunt for alternatives.

Enforcement and Unanswered Questions

Plenty of questions remain. How far will Beijing go in enforcing its rules outside China? Will the World Trade Organization get dragged into the fight? International lawyers predict challenges are likely within a year.

In the meantime, companies must audit their supply chains down to the tiniest fraction, tracing not just raw materials but also the origins of manufacturing techniques. Banks, freight forwarders, and customs brokers now carry new due diligence responsibilities, making even routine shipments slower and more complex.

What Comes Next

In the short run, expect turbulence. Prices will bounce, compliance teams will scramble, and some product launches may get delayed. Within a year or two, clearer patterns will emerge as Beijing shows whether it’s willing to grant licenses freely for commercial use or wield them as political weapons.

Many analysts think this is just the beginning. If history is any guide, China may add more items to the restricted list within the next year, tightening its grip further on industries it deems strategic.

For now, the message is clear: when it comes to rare earths, the world will have to play by Beijing’s rules—or find a way to live without them.

House Investment Thesis

Category	Details & Analysis
What Happened	China's MOFCOM enacted two key controls: • #62 (Effective Oct 9, 2025): Bans export of rare-earth know-how (mining to magnet manufacturing/recycling) without a license. "Export" includes data, code, and on-shore transfers to foreigners. • #61 (Effective Dec 1, 2025): A China-style Foreign Direct Product Rule (FDPR). Foreign items require a Chinese license if they contain ≥0.1% China-origin controlled RE, or were made using Chinese RE tech. Military users face a presumption of denial; advanced semis/AI are case-by-case.
Base Case (12-18 Months)	A licensing squeeze, not a full embargo, creating a two-tier market. Expect approvals for non-sensitive civilian uses but with delays. Defense/semis supply will be starved. This is a binding choke on key industries (EV, wind, defense).
Market Impact	• Pricing: Episodic spikes in magnet premia (especially Dy/Tb), higher working capital, longer lead times. • Compliance: The 0.1% de-minimis and "made-using-tech" clause drag many Western/Japanese SKUs into China's jurisdiction, forcing costly BOM redesign or onshoring in China.
Positioning & Trade Ideas	1. "China-inside": Long leading Chinese magnet/alloy producers (benefit from IP moat). 2. "China-free" Supply: Long LYNAS (LYC), MP Materials (MP), Neo Performance (NEO). Barbell strategy with core longs and optionality. 3. Magnet Alternatives: Long Nidec (6594) for ferrite motors; pair trade vs. NdFeB-exposed OEMs. 4. Downstream Users: BYD insulated. Tesla, VW, Vestas, GE, and defense primes (LMT, NOC) face margin headwinds/supply chain risks. Hedge OEM longs with RE supply names.
Concrete Predictions (Odds)	1. Managed trade with delays but regular approvals for civil OEMs: ~60% 2. G7/EU subsidy wave (>$500m) for magnets/recycling by Q2'26: ~70% 3. >15% volatility in Dy/Tb magnet premia by Mar '26: ~65% 4. WTO challenge on extraterritoriality within 6-9 months: ~55% 5. Further control list expansion in 12 months: ~50%
Underwriting the Trades	• Map exposure to "made-using-CN-tech" and the 0.1% rule. • Build bifurcated BOMs; model 5-10% magnet cost uplifts ex-China. • Add +30-90 days to lead times and raise inventory assumptions. • Assign option value to credible non-China projects.
Key Risks	• China issues "general licenses," narrowing price premia. • Global slowdown reduces EV/wind demand. • Shadow routing via intermediaries blunts enforcement. • Policy flip-flop from US/EU retaliation.
Immediate Watch Items	1. MOFCOM's first licensing decisions and turnaround times. 2. Customer announcements on lead-time extensions. 3. G7/EU policy and subsidy responses. 4. Magnet premia and contract lead times (not just oxide prices). 5. First enforcement headline under the extraterritorial rule (#61).

NOT INVESTMENT ADVICE

Beijing Tightens Grip on Rare Earths With Sweeping Export Curbs