China's tightening of export controls on rare earth elements has raised alarms for Japan's critical supply chains. As securing materials essential for electric vehicles (EVs), advanced electronics, and semiconductor equipment becomes increasingly difficult, Japanese companies are accelerating efforts to diversify their sources, turning to Australia and India.
According to an analysis by the Nikkei, China's customs trade statistics revealed that exports of seven rare earth elements targeted by export restrictions dropped by 88% in March and 82% in April compared to the same months last year. Cumulatively, exports from January to April fell by 34% year-on-year. Notably, the decline in March and April significantly exceeded the 42% drop observed immediately after China implemented export restrictions on these elements in May of the previous year.
The Chinese government introduced export regulations on Dysprosium, Terbium, and five other rare earth elements in April 2022. Since January of this year, it has intensified scrutiny on exports to Japan under the guise of dual-use items that can be utilized for both military and civilian purposes. The Nikkei noted that the deterioration of Sino-Japanese relations following comments made by Japanese Prime Minister Sanae Takaichi in November 2022 regarding Taiwan has likely influenced these developments. With China accounting for approximately 70% of global rare earth production, it appears to be leveraging this dominance to exert economic pressure on Japan.
An official from the Japan-China Economic Association reported that during a Sino-Japanese summit in October 2022, China had temporarily eased some export restrictions. However, the official added, "Since the beginning of this year, government-to-government exchanges have ceased, leading to a complete halt in exports to Japan that had been temporarily sustained."
In terms of specific items, there have been no exports of Dysprosium and Terbium to Japan since January. These elements are crucial for high-performance magnets used in EV motors and enhance the heat resistance of magnets. Although exports remained unstable after the introduction of China's export regulations in April 2022, there were signs of recovery toward the end of last year amid easing U.S.-China tensions. However, with the cooling of Sino-Japanese relations this year, exports to Japan have effectively ceased.
Yttrium, used in medical devices, semiconductor manufacturing equipment, and aerospace applications, has also faced significant impacts. From January to April this year, China's exports of yttrium to Japan plummeted by over 90% compared to the same period last year. Yttrium is a material used in laser-related equipment and is difficult to replace in the short term.
Exports of high-performance magnets that utilize rare earths are also facing disruptions. A representative from a Japanese company told the Nikkei, "Export permits for high-performance magnets containing Dysprosium and other elements are hardly being issued." China is known to dominate over 90% of the global market for subsequent processes such as rare earth separation, refining, and alloy processing.
In response to the reduced reliance on China, Japanese companies are seeking alternative sources. JX Metals is investing in Australian mines rich in rare earth deposits. Proterial (formerly Hitachi Metals) is considering building a neodymium magnet factory in India that does not use heavy rare earths. Australia ranks third globally in rare earth production, while India is sixth. Mitsubishi Materials has decided to invest in a U.S. company specializing in rare earth recycling technology.
However, establishing a supply chain to replace China in the short term is challenging. An executive from a major Japanese manufacturing firm expressed concern, stating, "If the current situation continues, it could disrupt production in Japan, potentially leading to factory shutdowns." Some companies have begun assembling motors and electronic components that use rare earth magnets in China before importing them to Japan.
The Japanese government is monitoring the possibility that companies may shift production bases to China to avoid procurement difficulties. In 2010, during a period of heightened tensions over the Senkaku Islands, China temporarily halted rare earth exports to Japan, which subsequently led to an increase in local production by Japanese magnet companies and enhanced the technological capabilities and market influence of Chinese firms.
* This article has been translated by AI.
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