China added a total of 40 companies and institutions, including Japan's National Institute for Defense Studies, to its export-control list for rare earths and other dual-use goods (items with both civilian and military applications). By weaponizing critical minerals, Beijing appears to be intensifying pressure on Japanese Prime Minister Takaichi Sanae.
On the 29th, China's Ministry of Commerce announced it had placed 20 institutions and companies involved in Japan's military buildup on its dual-use goods export-control list. Under the measure, exporters in China cannot ship dual-use goods to the 20 entities and must immediately halt any related transactions already underway. In addition, 20 Japanese firms whose end users and end uses cannot be verified—including Mitsui E&S and Hitachi Advanced Systems—were placed on a watch list. Exporting to companies on the watch list requires approval from China's Ministry of Commerce.
The latest measure is an extension of the export restrictions on Japan that China has steadily tightened since the start of this year. In January, China imposed a full ban on exports to Japan of dual-use goods—including many critical minerals such as rare earths—for military purposes. Based on this rule, China placed 20 entities including Mitsubishi Shipbuilding on the export-control list and 20 firms including Subaru and Fuji Aerospace Technology on the watch list this past February. With the latest additions, the number of sanctioned entities has doubled from 40 to 80.
China has been escalating its retaliation against Japan since Prime Minister Takaichi's remarks last November about "intervening in a Taiwan contingency." Through May this year, exports to Japan of key tungsten intermediate materials used in precision tools at auto plants, as well as terbium and dysprosium—essential for high-performance magnets in electric vehicles—registered "zero." Yttrium, used in semiconductor equipment and light-emitting diodes (LEDs), also plummeted to about 1.13% of last year's export volume.
The fallout from the rare-earth controls is materializing. Recently, two Japanese men working at the Chinese subsidiary of a Japanese company were detained by authorities. The Asahi Shimbun reported they are suspected of attempting to smuggle out of China processed rare-earth products whose export to Japan is restricted.
While the pain for Japanese companies is mounting, an early resolution of the bilateral conflict appears unlikely. According to Bloomberg, the Japanese ambassador to China has requested meetings with Chinese Foreign Ministry officials several times this year but has yet to secure one. Prime Minister Takaichi is scheduled to attend the Asia-Pacific Economic Cooperation (APEC) summit in Shenzhen, China, this November, but is reportedly reluctant to meet with President Xi Jinping, citing dissatisfaction over China's continued personal attacks.
The military standoff between the two countries also continues. In April, Japan participated in "Balikatan," the annual joint exercise between the United States and the Philippines. It was the first time in 80 years that Japan entered Philippine territory in a combat capacity. Then, on May 28, Japan and the Philippines formalized the start of negotiations to demarcate exclusive economic zone (EEZ) and continental shelf boundaries through a joint declaration at a summit, directly provoking China. In response, China's coast guard staged a show of force, patrolling waters east of Taiwan on the 1st of this month and conducting seabed surveys in the same area from the 6th to the 10th.
