Beijing: In the latest development in the escalating US-China tech rivalry, China has imposed stringent export restrictions on rare minerals crucial for semiconductor production, intensifying the global supply chain challenge for critical materials. According to a recent report by The New York Times, Beijing’s new policies aim to limit foreign access to these essential minerals, which play a critical role in advanced technology, including computer chips, artificial intelligence, and military equipment.

The recent export restrictions, effective from October 1, 2024, require exporters to provide step-by-step documentation on how rare earth metals are used in foreign supply chains. This new regulation grants China significant control over the availability of these materials, effectively allowing it to decide which foreign companies can access them. Beijing has also expanded its influence over state-owned enterprises in this sector, securing control over production processes and reducing foreign involvement in mining and refining operations within China.

Control Over Rare Earths Deepens
China already dominates the production of rare earths, essential for advanced technology products like electric car motors, wind turbines, and defense equipment. With the recent changes, China’s market dominance is further solidified. In September, the Ministry of Commerce also restricted the export of antimony—a material integral to semiconductors and military-grade technologies—and last year imposed controls on gallium and germanium, which are essential for chip manufacturing.

In addition to export restrictions, China has classified the mining and production details of rare earths as state secrets, underscoring the strategic importance it places on these resources. Recently, two industry managers were sentenced to 11 years in prison for disclosing information to foreign entities, highlighting China’s strict control over its rare minerals supply chain.

A National Security Challenge for the US and Allies
For the US and its allies, the ramifications are severe. The White House recently expressed concerns that China’s monopolistic control over the supply chain for rare minerals poses a direct threat to national security, especially as these materials form the basis for semiconductors crucial to artificial intelligence and advanced defense technologies. A previous incident in 2010, when China temporarily halted rare earth exports to Japan over a territorial dispute, underscores the potential leverage China holds.

The situation has prompted Western nations to explore alternatives, though competing with China’s entrenched supply chain remains a formidable challenge. Attempts to develop alternative supply chains have been slow, given that China’s lower production costs and chemical processing advancements make its operations difficult to replicate.

China’s Influence Over Rare Earth Production
China’s dominance is evident in examples such as dysprosium, a rare earth metal used for its heat-resistant properties in advanced semiconductors. Neo Performance Materials, a Canadian firm, is the last remaining foreign-owned rare earths refiner in China. However, Neo recently announced plans to sell an 86% stake in its Wuxi refinery to Shenghe Resources, a Chinese firm partially controlled by the Ministry of Land Resources. This shift places control of one of the world’s main dysprosium refineries directly under Chinese ownership.

While Western firms like Solvay in Belgium and Lynas in Australia are investing in small-scale dysprosium refining capabilities, scaling production to meet global demand remains a long-term endeavor. In the US, MP Materials—the operator of the only American rare earth mine in California—has a Department of Defense contract to enhance its refining processes, but it faces a years-long journey to reach full production capacity.

A Race to Diversify Supply Chains
With China controlling 85% of the global rare earth production and investing in mines across Tanzania, Greenland, and Australia, establishing independent supply chains outside China is proving complex. China’s expertise is bolstered by advances in chemistry, allowing its refiners to extract rare earths at lower costs. The country’s 39 universities dedicated to training engineers in the rare earths sector provide a skilled workforce that further cements China’s control.

China’s expanding influence over the rare earths industry has intensified efforts among Western countries to diversify their supply chains. However, replicating China’s scale, efficiency, and expertise in refining ultrapure materials like dysprosium remains a formidable task, leaving the US and its allies increasingly vulnerable to supply chain disruptions.

As the competition for advanced technologies continues, China’s dominance in rare minerals positions it as a critical player in the global tech supply chain. For the US and its allies, reducing dependence on Chinese rare earths will be a central focus, albeit one with considerable technical and logistical challenges. The latest developments signal a new phase in the technological standoff between the world’s two largest economies.