China announces its own “foreign direct product rule” for REE-related exports from third countries
China is expanding its export control system for rare earth elements (REEs) beyond its borders.
What happened: On Thursday, the commerce ministry (MofCom) announced new rules requiring companies in other countries to obtain a dual-use export license before shipping products that meet at least one of two conditions:
- They contain more than 0.1% Chinese-sourced rare earths
- They are produced using Chinese rare earth extraction, refining, or magnet-making technologies
Sound familiar? This mirrors the US's “foreign direct product rule” (FDPR), which compels other countries to comply with US export restrictions on advanced chips, materials, and equipment containing US technology.
MofCom’s rules also ban the export of related products that will have a military application.
MofCom singles out exports tied to advanced semiconductors and AI for special attention, stating that:
- "Export applications for items whose end use is the R&D or production of 14-nanometer and below logic chips, or 256-layer and above memory chips, as well as for manufacturing and testing equipment and materials for such semiconductors, or for AI R&D with potential military applications, shall be reviewed on a case-by-case basis."
MofCom also took aim at the US's recently announced “50% rule,” which effectively prohibits a broad swath of China-linked companies from buying US technology.
- MofCom included a similar provision in the rules released Thursday.
Get smart: While the US controls the tech “switch” of the chips industry, China is asserting control over the critical material “switch” – and it now has a new tool to hit back at firms that side with US tech restrictions or otherwise cross China's political red lines.
- This raises the risk of further disruptions for semiconductor supply chains – and global business more broadly.