China's recently passed law to further restrict exports in retaliation to the United States so-called Entity List has raised new concerns over its possible impact on transactions related to rare earth metals. The law, which was passed on Saturday, effectively placed restrictions on the exportation of "sensitive" goods and technologies to specific foreign companies.
"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," a report published by state-run Xinhua News had stated.
Companies from both sides have expressed concerns over how the new law could impact the trade of rare earth metals. China currently supplies more than 60 percent of rare earth metals globally. If the items are designated as "restricted items," it could have broad implications on worldwide industries.
The production of neodymium magnets, as an example, could be heavily affected by a ban as China is one of the largest sources of the rare-earth metal dysprosium, which is a vital component for the magnet's production. This could result in foreign companies scrambling to find other alternative sources, likely disrupting the already fragile global supply chain for such materials.
Industry experts have noted that the law's exact wording, such as the inclusion of "and interests," does give the Chinese government significant leeway in "punishing" certain companies. This makes it essentially equivalent to the U.S. Department of Commerce's Entity List, which also gives the U.S. government broad powers to restrict Chinese companies under the grounds of national security.
China's new export control law will take effect on December 1, after the U.S. Presidential Elections. Under the new law, several areas are considered to be "sensitive" in nature as it could results in threats to the country's national security if abused. This includes technology and goods related to science, technology, information, ecology, nuclear, resources, culture, economy, and society.
Items and technologies designated as "sensitive" under the new law can still be exported but only with explicit permission. Chinese firms wishing to export these types of items and technologies will be required to submit reports and proof of its final application and end-users.