Categories: Business & Economy

China tightens controls on rare earth exports, targets defense and semiconductor users

BEIJING, Oct 9 (Reuters) – China tightened controls on exports of rare earths on Thursday, widening restrictions on processing technologies and making clear it plans to limit exports to foreign users of defense equipment and semiconductors.

The Commerce Department’s announcement, which follows a call by U.S. lawmakers Tuesday for broader bans on the export of chipmaking equipment to China, extends drastic controls announced by Beijing in April that caused shortages around the world before a series of deals with Europe and the United States eased the supply crisis.

The controls are a major bargaining chip for China in its trade negotiations with the United States, and the strengthening comes weeks before a face-to-face meeting between Presidents Donald Trump and Xi Jinping in South Korea.

“From a geostrategic perspective, this helps increase Beijing’s influence ahead of the planned Trump-Xi summit in (South) Korea later this month,” according to Tim Zhang, founder of Singapore-based Edge Research.

China produces more than 90% of the world’s rare earths and processed rare earth magnets. The 17 rare earth elements are essential materials in products ranging from electric vehicles to aircraft engines and military radars.

China is also extending its export controls to foreign companies that use Chinese rare earth equipment or materials, the Commerce Department said in its statement, mimicking U.S. rules that restrict exports of semiconductor-related products.

Restrictions on the export of technology to make rare earth magnets will also be extended to more types of magnets, and China will limit certain components and assemblies containing restricted magnets, China’s Ministry of Commerce said in a statement.

China is the world leader in rare earth technology, and equipment to recycle rare earths will now require a license to export, adding to the long list of restricted processing technologies.

The new extraterritorial rules will take effect on December 1, while the other rules will take effect immediately.

Shares of Chinese rare earth companies China Northern Rare Earth Group (600111.SS)open a new tab and Shenghe Resources (600392.SS)open a new tab jumped 8.3% and 6.3%, respectively, as of 0719 GMT.

FLEAS AND DEFENSE

The Commerce Ministry’s announcement clarified for the first time some of the goals of China’s restrictions. Foreign users in the defense sector will not receive a license, the ministry said, while applications related to advanced semiconductors will only be approved on a case-by-case basis.

The new rules apply to chips 14 nanometers or larger, memory chips 256 layers or larger, and equipment used in the production of those chips, as well as related research and development. These advanced chips are used in a wide range of products, from smartphones to AI chipsets that require powerful computing performance.

The rules will also apply to research and development of artificial intelligence with potential military applications.

South Korea, home to major memory chip makers Samsung Electronics (005930.KS)open a new tab and SK Hynix (000660.KS)open a new tabis assessing the details of the new restrictions and will continue discussions with China to minimize their impact, its industry ministry said in a statement to Reuters.

Samsung declined to comment. SK Hynix and TSMC of Taiwan (2330.TW)open a new tab did not immediately respond to questions.

Shares of TSMC ended up 1.8% on Thursday as the company reported better-than-expected third-quarter revenue. South Korean financial markets are closed Thursday for a public holiday.

Chinese shipments of rare earths have increased steadily in recent months as Beijing grants more export licenses, although some users still complain of difficulty obtaining them.

In a nod to concerns over access, the Commerce Ministry said the scope of elements of its latest round of restrictions was limited and that “various licensing facilitation measures will be adopted.”

Reporting from the Beijing office; Additional reporting by Heekyong Yang in Seoul; Editing by Christian Schmollinger, Kate Mayberry and Tom Hogue

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