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China passes export control law with potential for rare-earths ban

Legislation empowers government to cast wide net on foreign companies.

Containers wait to be shipped in China’s Dalian port. (Photo by Akira Kodaka)

China’s top legislature on Saturday passed a law on export control, allowing the government to ban exports of strategic materials and advanced technology to specific foreign companies on its equivalent of the U.S. Department of Commerce’s Entity List.

“China may take countermeasures against any country or region that abuses export-control measures and poses a threat to China’s national security and interests, according to the law,” the official Xinhua News Agency reported.

The inclusion of the phrase “and interests” suggests that the law will give the government more leeway to move against those it wants to punish.

The passage marks another step in the tit-for-tat escalation between China and the U.S., which has been strengthening sanctions on Huawei Technologies.

The new Chinese law goes into effect on Dec. 1, after the U.S. elections.

Concerns have been raised that rare-earth metals, for which China’s market share exceeds 60%, may be included in the restricted items. Such a ban would have broad implications worldwide.

Under the concept of adhering to “overall national security,” 11 areas are deemed relevant: politics, land, the military, the economy, culture, society, science and technology, information, ecology, resources, and nuclear.

Items designated by the government as subject to export controls could still be sent abroad with permission. An exporter in China will need to submit the name of the end user and proof of the item’s final application. The documentation will need to come from the end user or from the authorities where the end user is based.

Approval or disapproval of exports will be based on eight criteria: national security and interests, international obligations and external commitments, the type of exports, the sensitivity of controlled items, the countries or regions they are bound for, the end users and end uses, relevant credit records of exporting companies, and “other factors stipulated by laws and administrative regulations.”

Not only end users, but also companies that import export-controlled items from China, could potentially be placed on the entity list — a possibility that has put many Japanese companies on edge.

Shin-Etsu Chemical produces neodymium magnets, the strongest type of permanent magnet available. And China is a source for much of the rare-earth metal dysprosium, a key material used. While Shin-Etsu has been trying to reduce its dependence on China, “there is concern that an export ban may influence stable procurement,” a company representative said.

Chinese exporters will be barred from dealing with companies on the entity list. But they will be able to request exemptions under certain conditions, according to the law.

The legislation can also be enforced over acts committed outside Chinese borders. While it does not elaborate on the penalty, employees of Japanese companies without offices in China could be arrested upon entering the country, for example.

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