China won’t restrict supply

Chinese officials are highly conscious of the geopolitical advantage they derive from their REE dominance. The 2010 incident over REE shipments to Japan was a wake-up call to import-dependent customers. Almost a decade later in 2019, threats of restricted supply returned.[65] Xi’s visit to a REE magnet production facility in Ganzhou in 2019 was widely regarded as a sign that restricting REE supply is on the table.[66] A week later, the People’s Daily posted an article explicitly threatening that if “the U.S. side wants to use the products made by China’s exported rare earths to counter and suppress China’s development,” the U.S. should not “underestimate the Chinese side’s ability to safeguard its development rights and interests.”[67] The more recent MIIT draft controls list proposed in January 2021 also suggests that international policy responses significantly influence Chinese domestic policies toward rare earths.[68] Officials in Beijing are particularly focused on how quickly the U.S. would secure alternatives if REE were included on the control list.

Therein lies a paradox: China’s state-supported rare earth enterprises remain at the behest of international market dynamics. Overburdening policy changes and perceived supply insecurity would push buyers away from Chinese suppliers. Any restrictive moves would likely spur proactive value chain restructuring away from Chinese REE. Therefore, Chinese officials would be unlikely to directly restrict trade for political reasons and calls for such are primarily just sword rattling to disguise domestic policies and production controls that bear a more long-term effect on supply coming out of China.