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China targets rare earth export restrictions to hamper U.S. defense industry

China is investigating whether it can hurt U.S. defense contractors by restricting exports of rare earth minerals that are crucial for making F-35 fighter jets and other sophisticated weapons, according to people involved in government consultation.

Last month, the Ministry of Industry and Information Technology proposed plans to control the production and export of 17 rare earth minerals in China, which controls about 80% of the world’s supply.

Industry executives said government officials asked them to what extent U.S. and European companies, including defense contractors, would be affected if China restricts rare earth exports in a bilateral dispute.

“The government wants to know if the United States might have difficulty making F-35 fighter jets if China imposes an export ban,” said a Chinese government adviser who asked not to be identified. Industry executives added that Beijing wanted to better understand how quickly the United States could obtain alternative sources of rare earths and increase its own production capacity.

Fighter jets such as the F-35, a Lockheed Martin aircraft, rely heavily on rare earths for critical components such as power systems and magnets. A Congressional Research Service report said each F-35 required 417 kg of rare earths

The Chinese move follows the deterioration of Sino-US relations and an emerging technology war between the two countries. The Trump administration has tried to make it harder for Chinese companies to import sensitive U.S. technologies, such as high-end semiconductors. The Biden administration has said it will also restrict some exports but work more closely with its allies.

Beijing’s control of rare earths threatens to become a new source of friction with Washington, but some warn that any aggressive action by China could backfire by causing rivals to develop their own production capacity.

In a November report, Zhang Rui, an analyst at Antaike, a government-backed consultancy in Beijing, said U.S. arms manufacturers could be among the first companies to be hit by an export restriction.

China’s Foreign Ministry said last year it would sanction Lockheed Martin, Boeing and Raytheon for selling weapons to Taiwan, the autonomous island that Beijing claims as its sovereign territory.

The proposed guidelines would require rare earth producers to follow export control laws that regulate shipments of materials that “help safeguard state security.” The Chinese State Council and the Central Military Commission will have the final say on whether the list should include rare earths.

Rare earth minerals are also central to the manufacture of products such as smartphones, electric vehicles and wind turbines.

The F-35 uses rare earths for critical components such as power supply systems © George Frey / Bloomberg

However, some executives and officials question the wisdom of formally including rare earths in the export control regime. They argue it would motivate Beijing’s rivals to ramp up their own production capacities and undermine China’s dominance over the industry.

“Export controls are a double-edged sword that must be applied very carefully,” said Zhang of Antaike.

The Pentagon is increasingly concerned about the United States’ dependence on China for rare earths that are used in everything from precision-guided missiles to drones.

Ellen Lord, the senior defense official for acquisitions until last year, told Congress in October that the United States should stockpile certain rare earths and restore national treatment. She said the United States has a “real vulnerability” because China floods the market to destroy all competition whenever nations are about to start mining or producing.

In recent months, the Pentagon has signed contracts with American and Australian miners to increase their onshore refining capacity and reduce their dependence on Chinese refiners.

The US National Security Council did not respond to a request for comment.

Chinese rare earth miners themselves are concerned about the increased power regulation would give MIIT to control their production.

China started setting rare earth production limits in 2007 to keep prices high and reduce pollution, but the policy is not legally binding and many miners regularly exceed their production quotas. The latest regulations would allow the government to impose steep fines for unapproved sales.

“The new rule is not going to strengthen China in the global supply chain when local mines cannot operate at full capacity and an export ban is easier said than done,” said one cadre, who asked not to be identified, in Guangdong. Rare Earth Group, one of the largest rare earth groups in the country.

In a statement, MIIT said the new law would help “protect the national interest and ensure the security of strategic resources.”

According to government statistics, China’s demand for rare earths is so high that it has consistently exceeded domestic supply over the past five years, resulting in increased Chinese imports from miners to the United States and the United States. Myanmar.

A wide range of industries are driving demand for the strategic resource, including China’s electric vehicle and wind power sectors.

“China’s economic planners have failed to predict the surge in consumption of rare earths,” said an executive with Gold Dragon Rare Earth Co in southeastern Fujian Province.

“The security of China’s rare earths is not guaranteed,” said David Zhang, analyst at Sublime China Information, a consultancy firm. “It can disappear when the US-China relationship deteriorates Myanmar generals decide to close the border.

While China’s dominance in rare earth mining is threatened, it maintains a near monopoly in the refining process that turns ores into materials ready for manufacturers.

The country controls about four-fifths of the world’s rare earth refining capacity. The minerals mined in the United States must be sent to China, as the United States does not yet have its own refining capacity.

Industry executives, however, said China’s strength in refining was more related to its higher tolerance to pollution than to any technological advantage.

Additional reporting by Tom Mitchell in Singapore

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