Chinese firms use rare-earth ban to squeeze foreign rivals

Chinese manufacturers are seizing a "historic" opportunity to move up the value chain as Beijing's rare-earth export controls deny foreign rivals access to key materials, according to the Financial Times.ft
Japan has been hardest hit, with rare-earth magnet exports falling sharply in May and heavy rare-earth shipments at zero since late 2025, according to Reuters .reuters+1
Shin-Etsu Chemical halted new orders for certain magnets, while Tokyo pursues recycling, stockpiling, and allied supply deals that remain years from scale.japantimes+2

Chinese manufacturers that use rare earths are seizing what the Financial Times describes as a "historic" opportunity to move up the industrial value chain and squeeze out foreign competitors, leveraging Beijing's escalating export controls on critical minerals to capture higher-value manufacturing segments previously dominated by Japanese and other international firms.ft+2

From Raw Materials to Market Power

The report, published by the Financial Times on July 8, details how China's export restrictions — initially imposed in January 2026 after Japanese Prime Minister Sanae Takaichi characterized a potential Chinese attack on Taiwan as an "existential threat" — are now enabling Chinese companies to displace rivals in downstream manufacturing, not merely in raw material supply. With China controlling roughly 70 percent of rare earth production and close to 90 percent of global refining capacity, domestic firms enjoy uninterrupted access to materials their foreign competitors can no longer obtain.cnbc+3

The restrictions have hit Japan particularly hard. Reuters reported on July 7 that a shortage of critical minerals is now affecting the broader Japanese economy, with corporate filings flagging growing urgency. China's exports of rare earth magnets to Japan fell 35 percent in May alone, reaching the lowest levels in over a year. Exports of heavy rare earths such as terbium and dysprosium oxide to Japan have been zero since late 2025.reuters+4

Japanese Industry Scrambles for Alternatives

The squeeze has forced Japanese companies into costly workarounds. Shin-Etsu Chemical, one of the world's largest rare earth magnet makers, has stopped accepting new orders for dysprosium-containing magnets and announced plans for a domestic rare earth refinery in Fukui Prefecture. Mitsubishi Electric launched a program in June to recycle rare earths from discarded air conditioners, though analysts say such efforts are expensive and yield only light rare earths in small quantities.globaltimes+2

Japan's government has signed a framework with U.S. President Donald Trump for joint stockpiling and coordination on critical minerals, and the Group of Seven agreed in June to step up stockpile coordination. Commercial-scale alternatives, however, remain years away.money.usnews+1

Reshaping Global Supply Chains

Beijing has steadily widened its campaign throughout 2026. In June, China blacklisted MP Materials and USA Rare Earth along with eight other U.S. entities linked to the military. It also added Japanese defense institutes and companies including units of Mitsubishi Heavy Industries and drone maker Terra Drone to export control and watch lists.reuters+1

The cumulative effect extends well beyond raw material flows. By denying foreign manufacturers access to processed rare earths and magnets while Chinese firms face no such constraint, Beijing's controls are accelerating a structural shift in which Chinese companies can undercut and displace competitors in sectors ranging from electric vehicles to robotics to defense electronics.moneycontrol+1

Sources (38)