China tightens export controls on Japanese defence-linked entities

China expanded export restrictions on Japanese defence-linked organisations on Monday, adding 20 entities to an export-control list and placing another 20 under closer licensing scrutiny. The measures widen Beijing’s curbs on access to Chinese-origin dual-use goods, including materials used in defence supply chains, and add pressure to already strained relations with Tokyo.

China’s Ministry of Commerce said the export-control list now includes the National Institute for Defense Studies and research centres tied to ground, naval and air systems. Units of Mitsubishi Electric and Mitsubishi Heavy Industries were also named by the ministry.

Under the ministry’s notice, Chinese exporters, as well as overseas organisations and individuals, are barred from supplying Chinese-origin dual-use items to entities on the list. The ministry said any transactions already under way must cease immediately.

In a separate action, Beijing placed 20 more Japanese entities on a watch list that subjects shipments to stronger end-user and end-use checks. The list includes Mitsui E&S, Terra Drone, nuclear fuel processors and several units of OKI Electric Industry, according to the ministry.

The ministry said it would not approve exports involving Japanese military users, military applications or end uses that could improve Japan’s defence capabilities. Both sets of measures took effect immediately.

Controls build on earlier measures

The latest restrictions follow a campaign that Beijing began in January, when it banned dual-use exports to Japan that included rare earth elements, permanent magnets and other critical minerals used in defence technologies, according to China’s Ministry of Commerce.

In February, China added 20 entities to its export-control list, including subsidiaries of Mitsubishi Heavy Industries, IHI and Kawasaki Heavy Industries. It also placed another 20 firms on its watch list, including Subaru, TDK and FUJI Aerospace Technology, according to ministry announcements.

The trade restrictions have followed a diplomatic dispute over Taiwan. Japanese Prime Minister Sanae Takaichi said in November that a hypothetical Chinese attack on Taiwan could prompt a military response from Tokyo, drawing criticism from Beijing.

A Ministry of Commerce spokesperson said Monday that Japan had shown no remorse after the February listings and had accelerated what Beijing described as “new-style militarism,” including offensive weapons deployment and overseas missile launches. The spokesperson urged Japan to “turn back from the wrong path,” while saying the measures would not disrupt normal bilateral trade and that “law-abiding Japanese firms have no reasons to worry.”

Critical minerals remain a pressure point

Japanese equities moved unevenly after the announcement. Mitsubishi Electric fell about 1.4% and Howa Machinery, one of the entities on the watch list, declined 4.6%. Mitsubishi Heavy Industries rose 4.9%, while Terra Drone gained 1.7%.

Gracelin Baskaran, director of the critical minerals security program at the Center for Strategic & International Studies, said in a January report that China has used its position in critical mineral supply chains as a tool to deter political conduct it opposes without using military force. She said countries that have signalled support for Taiwan are especially exposed.

Japan has put money into domestic refining and processing since 2010 to reduce reliance on China for rare earths. Even so, its supply chains remain tied to China and Vietnam across mining, processing and permanent magnet production.

Koki Akimoto, an economist at Daiwa Institute of Research, estimated in December that a one-year halt in Chinese rare earth imports, combined with sustained component supply constraints, would cut Japan’s real GDP by about 1.3%, or roughly 7 trillion yen, equal to $43.3 billion.

This story draws on original reporting from CNBC.