Chinese Companies Sidestep Beijing’s Rare-Earth Export Controls
Many individuals would assert, where there is a will, there is a way. In environments where regulations are stricter, the motivation to circumvent them for financial gain intensifies. The reasoning behind this is currently influencing the actions of China’s rare-earth magnet manufacturers, who are exploring innovative strategies to manoeuvre through a complex web of export restrictions imposed by the Xi Jinping administration, employing creative legal nuances to maintain their operations. In response to the renewed licensing rules this year that are causing delays in shipments for weeks, Chinese companies are taking significant steps. They are redesigning magnets, rethinking manufacturing processes, and altering shipping methods, all aimed at preserving access to Western buyers while adhering to legal requirements, as per reports. Rare-earth magnets find application in various products such as cars, wind turbines, robotics, industrial machinery, and defence equipment. China plays a dominant role in the production of both rare earths and the magnets derived from them, accounting for approximately 70 percent of the global share. This has historically rendered global manufacturers reliant on Chinese supplies.
Earlier this year, China implemented a new export-licensing system, coinciding with a period when Beijing and Washington were embroiled in a significant tariff conflict. The implementation of this new system has resulted in a slowdown of rare earths, leading to significant delays and disruptions for Western companies. In October, China consented to delay certain forthcoming restrictions as part of an agreement with the United States. Nevertheless, companies continue to express uncertainty regarding the potential return of supplies to prior levels. As per report, a significant alteration has emerged from technical modifications to magnet formulas. For instance, specific powerful magnets generally contain small amounts of heavy rare-earth elements, especially dysprosium and terbium. These additives enable magnets to operate effectively at elevated temperatures. However, Chinese regulations implemented in April mandate export licenses for magnets that contain even trace amounts of these materials, and the approval process can extend over weeks or months. Consequently, Chinese companies are striving to manufacture magnets that avoid the use of these restricted elements. Manufacturers are employing techniques like grinding the material to an extremely fine consistency to enhance heat resistance. This necessitates specialised machinery and elevates production costs. The report indicated that although research into these alternatives has been ongoing for years, the new export rules have introduced a sense of urgency.
The resulting products are typically engineered to function at temperatures reaching approximately 300 degrees Fahrenheit. This performance is appropriate for home appliances; however, sectors like automotive and aerospace frequently require higher tolerance levels. Several large Chinese producers are actively promoting magnets that do not contain restricted heavy rare earths. Companies such as Yonjumag, Anhui Hanhai New Material, Zhaobao Magnet, and X-Mag have announced their efforts in developing new grades aimed at circumventing materials subject to the licensing regulations. According to the report, some of these companies have provided technical data regarding the performance of their products, characterising them as reactions to increasingly stringent export regulations. Chinese companies are exploring innovative approaches to product delivery. Although the export of rare-earth magnets is limited, the export of numerous applications that utilise them, including motors, remains unrestricted. Consequently, certain producers are collaborating with local parts manufacturers to transport motors and other components that already have magnets embedded. This method enables companies to lawfully export products that contain magnets without the need to obtain licenses. The report highlighted that numerous Western companies persist in purchasing these magnets, even amid worries that their performance might not align with that of conventional products. According to traders, customers are prepared to tolerate minor decreases in performance due to limited supply.
In July 2023, China enacted export licensing requirements for various gallium and germanium products utilised in chip manufacturing, mandating the disclosure of end-users and end-uses prior to approval. In October of the same year, Beijing implemented export controls on high-purity synthetic graphite and natural flake graphite, requiring permits for key battery-grade grades. Beginning in late 2024, a formal ban was implemented on the export of gallium, germanium, antimony, and specific “superhard materials” to the US, positioned as a national-security measure in response to US semiconductor regulations. China has long capped and licensed rare-earth exports, but this year it broadened controls to 12 elements and also to mining, refining and magnet-making technologies, with extra scrutiny for semiconductor and defence users. The new regulations mandate licenses for the export of goods that contain more than a minimal amount of Chinese rare-earth elements or are manufactured using Chinese processing technology. Additionally, they restrict Chinese entities from engaging in overseas rare-earth mining and magnet projects unless they have received state approval.
