German Companies Have to Disclose Sensitive Information to China to Obtain Rare Earths

Due to China's tightening of rare earth export controls, German companies have been forced to cope with a "new normal." According to Bloomberg, German companies have been compelled to share many confidential data with Beijing in order to obtain rare earth import licenses. Experts warn that this could pose serious security risks to Germany and European supply chains.

According to information from the German think tank "Mercator Institute for China Studies (MERICS)," 95% of the rare earths used in Germany come from China, more than any other EU country. Image source: Xinhua/imago images

In the context of escalating Sino-US trade tensions, Beijing ordered further strengthening of control over rare earth exports on October 9. Earlier, in April, China had already imposed export controls on seven rare earths and corresponding rare earth magnets. Rare earths are key materials for various products such as electric vehicles, aircraft engines, and military radars. Currently, China produces over 90% of the world's rare earths and rare earth magnets.

This has had a significant impact on some German companies that rely on Chinese rare earths. The new regulations require foreign companies to submit a large amount of application materials to obtain a six-month rare earth import license.

According to Bloomberg, people who have seen the application materials required by the Chinese government said that the content is extremely detailed, requiring the provision of product photos, specific uses of rare earth minerals, production flowcharts, and customer data. In some cases, they also require providing production data from the past three years and forecast data for the next three years. This information may help China identify weaknesses in Germany, such as which companies only have one Chinese supplier or which companies have limited inventory.

Bloomberg's report also pointed out that although German companies are reluctant to disclose such data, they have no choice. According to information from the German think tank "Mercator Institute for China Studies (MERICS)," 95% of the rare earths used in Germany come from China, more than any other EU country.

German SMEs Face Production Shutdowns

If companies cannot obtain Chinese licenses on time, it may lead to production shutdowns. According to Bloomberg, the China-EU Chamber of Commerce reported that in September's survey, only 19 out of 141 applications were approved, leading to the shutdown of 46 European companies in September, and an estimated 10 more companies will shut down by December.

According to insiders who spoke to Bloomberg, so far, the main companies affected by the shutdowns in Germany are small and medium-sized enterprises, which have not received special attention from Berlin. On the contrary, large manufacturing companies such as the German automotive industry quickly obtained licenses. To expedite the approval process, the German embassy in Beijing provided China with a priority list ("white list").

Disturbing Security Risks

Rebecca Arcesati, an analyst at the German think tank "Mercator Institute for China Studies (MERICS)," told Bloomberg that the information collected by China could help consolidate the dominance of Chinese companies and gain more favorable conditions for Chinese businesses and investments in Europe. "From Beijing's perspective, having a say in how these industrial supply chains are structured is a huge advantage," she said.

This could not only disrupt the German economy but also have disturbing effects on European supply chains and even NATO. "By collecting all this information, China probably has some understanding of the defense industry of NATO countries and their interconnections," said analyst Arcesati.

How is Berlin Responding?

A spokesperson for the German Ministry of Economics, Spohr, stated, "We are closely watching the ongoing expansion of China's export control measures." She added that the German government is "using all available channels" to address this issue.

According to insiders who spoke to Bloomberg, unlike China, Berlin cannot exert similar influence on German companies and does not have an immediate strategy to resolve this issue.

Bloomberg's report pointed out that Berlin has gradually become aware of this issue, but there seems to be a divergence of opinions and mutual complaints between the political and business sectors. This has led to a deadlock. Companies are unwilling to diversify their supply sources without government compensation. Meanwhile, the government emphasizes that the private sector itself is responsible for ensuring its own supply chain security.

Visiting German Rare Earth Suppliers

According to insiders who spoke to Bloomberg, Beijing has proposed that if Germany also relaxes high-tech export restrictions, China would consider lifting some restrictions. In addition, China is discussing these control measures with the EU, and the European Commission is preparing retaliatory measures. Insiders who spoke to Bloomberg said that Beijing seems to prefer bilateral negotiations with Merz rather than discussions within the EU.

Friedrich Merz, from the Christian Democratic Union, has not yet visited China since becoming Chancellor. It was reported this summer that Merz might visit China this autumn. However, the German Chancellor's office did not confirm this information, and the schedule remains unconfirmed to date.

The German Foreign Minister, Wadefur, had planned to discuss this matter with Chinese officials next week in Beijing. However, his trip was suddenly postponed on Friday, October 24.

Bloomberg's report pointed out that the latest developments surrounding rare earth controls should not be unexpected for Berlin. "This is something the Chinese leader has long been saying," said Arcesati from the Mercator Institute for China Studies (MERICS). "It is crucial for European politicians to take seriously the strategic goals that China has declared."

Sources: DW

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