China tightens rare earth export controls, targets defence, semiconductor users

The Ministry of Commerce's announcement, which follows a U.S. lawmakers' call on Tuesday for broader bans on the export of chipmaking equipment to China, expands sweeping controls Beijing announced in April that caused shortages around the world before a series of deals with Europe and the U.S. eased the supply crunch.

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

"From a geostrategic perspective, this helps with increasing leverage for Beijing ahead of the anticipated Trump-Xi summit in (South) Korea later this month," according to Tim Zhang, founder of Singapore-based Edge Research.

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

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

Restrictions on exporting the technology to make rare earth magnets will also be expanded to more types of magnets, and China will limit some components and assemblies that contain 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 licence to export, adding it to the long list of restricted processing technology.

The new extraterritorial rules will start on December 1, while the remainder commence immediately.

Shares of Chinese rare earth companies China Northern Rare Earth Group 600111.SS and Shenghe Resources 600392.SS surged by 8.3% and 6.3%, respectively, as of 0719 GMT.

CHIPS AND DEFENCE

The Ministry of Commerce's announcement clarified for the first time some of the targets of China's restrictions. Overseas defence users will not be granted licences, the ministry said, while applications related to advanced semiconductors will only be approved on a case-by-case basis.

The new rules apply to 14-nanometer chips or more advanced chips, memory chips with 256 layers or more, and equipment used in production of such chips, as well as to 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 chipmakers Samsung Electronics 005930.KS and SK Hynix 000660.KS, is assessing the details of the new restrictions and would continue discussions with China to minimise their impact, its industry ministry said in a statement to Reuters.

Samsung declined to comment. SK Hynix and Taiwan's TSMC 2330.TW did not immediately respond to questions.

Shares in TSMC finished up 1.8% on Thursday, as the company reported forecast-beating third-quarter revenue. South Korea's financial markets are closed on Thursday for a public holiday.

China's rare earth shipments have been growing steadily over the past few months as Beijing grants more export licences, although some users still complain they are struggling to get them.

In a nod to concerns about access, the Ministry of Commerce said the scope of items in its latest round of restrictions was limited and "a variety of licensing facilitation measures will be adopted."