Chinese President Xi Jinping. Reuters/Yonhap News
China has added a large number of Japanese defense-related research institutes and companies to its export control lists for dual-use goods, including rare earths. Beijing appears to be tightening its grip on the Japanese economy through its dominance in critical minerals, raising the pressure on Prime Minister Sanae Takaichi.
China’s Ministry of Commerce said Saturday that it had added 20 institutions involved in Japan’s military buildup, including Japanese defense research institutes, to its export control list for dual-use goods, items that can be used for both civilian and military purposes. It also added 20 Japanese companies, including Mitsui E&S and Hitachi Advanced Systems, to a watch list, citing the inability to verify the end users and end uses of dual-use goods.
The measure is an extension of the dual-use export controls that China has been gradually strengthening against Japan since early this year. On Jan. 6, China in principle banned exports to Japan of all dual-use materials, including rare earths and rare earth magnets. Based on this regulation, on Feb. 24 it placed 20 companies and institutions, including affiliates of Mitsubishi Heavy Industries and IHI, on its export ban list, and added 20 companies and institutions, including Subaru and Fuji Aerospace Technology, to its watch list. With the latest measure, the number of sanctioned entities has doubled from 40 to 80.
China has been using its critical mineral supply as a weapon to squeeze the Japanese economy since Prime Minister Takaichi failed to retract her November remarks about “exercising the right of collective self-defense in a Taiwan contingency.” Through May this year, exports to Japan of major tungsten intermediate materials used in precision tools at automobile plants, as well as terbium and dysprosium essential for high-performance magnets for electric vehicles, fell to virtually zero. Exports of yttrium, used in semiconductor equipment and light-emitting diodes (LEDs), also dropped to 1.13% of last year’s volume, effectively cutting off supply.
The fallout from the rare earth controls is becoming reality. Recently, two Japanese men working at the Chinese subsidiary of a Japanese company were detained by authorities. The Asahi Shimbun reported that they are suspected of attempting to smuggle out of China processed rare earth products whose export to Japan is restricted. Masayoshi Matsumoto, chairman of Sumitomo Electric Industries, a major tungsten consumer, told Bloomberg at a recent industrial exhibition in Beijing, “If this situation continues, we will need to engage in dialogue with the Chinese government.” He expressed concern, adding, “If China excludes Japan from supply, there will clearly be problems for Japanese manufacturing.”
While the pain for Japanese companies is growing, the bilateral conflict appears unlikely to be resolved early. The Japanese ambassador to China has requested meetings with Chinese Foreign Ministry officials several times this year, but none have materialized. Takaichi is scheduled to attend the Asia-Pacific Economic Cooperation (APEC) summit in November, but is reportedly reluctant to meet with President Xi Jinping due to her dissatisfaction over China’s personal attacks against her.
Military tensions between the two countries also continue. After Japan and the Philippines formalized the start of negotiations on demarcating their exclusive economic zones (EEZ) and continental shelf through a joint declaration at their summit on May 28, the China Coast Guard patrolled waters east of Taiwan on the 1st of this month. From the 6th to the 10th, together with authorities from Fujian and Guangdong provinces, it conducted special maritime traffic law enforcement and seabed surveys in the same waters in a show of force.