[Source/Observer Network Xiong Chaoyan] Reuters reported on June 4 that China has introduced a tracking system for the rare earth magnet industry as part of its export control policies. Three sources familiar with the matter said that the Chinese tracking system came into effect last week, requiring producers to submit additional information online, including transaction volume and customer names.

According to the sources, China announced high-level plans to establish an information tracking system for rare earth products last June, but it was only mentioned again last week. The report suggests that this additional review indicates that China's export controls on rare earths and related magnets may become long-term policies, given China's near-monopoly in production in these areas.

Meanwhile, the United States and other countries have been hoping that China would lift the export ban. "Our current speculation is that China will continue its export control mechanism for rare earths because it is one of China's trump cards," said Tim Zhang, founder of Singapore-based market research firm Edge Research.

Another source familiar with the matter said that China's long-term goal is to track the entire rare earth production chain, not just rare earth magnets, to strengthen industry regulation and combat smuggling, illegal mining, and tax evasion.

Rare earths waiting for export in Lianyungang, Jiangsu Province, Reuters

In April 2023, the Trump administration in the United States imposed so-called "reciprocal tariffs" on the world, with tariffs on China reaching 145%.

Following this, China immediately implemented a series of targeted countermeasures, including increasing tariffs, and imposing export controls on seven categories of medium and heavy rare earth-related items such as samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. The Financial Times cited insiders at the time as saying that China was establishing an export licensing system. In December last year, China also announced strict controls on exports of gallium, germanium, antimony, superhard materials, graphite, and other dual-use items to the United States.

Reuters reported that as the largest supplier and exporter of rare earth magnets globally, approval delays in this field have already disrupted supply chains for automakers, semiconductor companies, and other companies. With reserves depleting, global automakers have begun shutting down some production lines.

According to a report by Reuters on June 3, following similar complaints from an electric vehicle manufacturer in India last week, the German automotive industry association became the latest group to voice concerns about being affected by China's export controls. On the same day, Hildegard Mueller, president of the German Association of the Automotive Industry (VDA), said: "If the current situation does not change quickly, there is no guarantee against possible production delays or even interruptions in Germany."

In a statement to Reuters, she said that the automotive industry needs rare earth magnets for everything from windshield wiper motors to brake sensors, and the industry may struggle to maintain smooth operations. She added that China has issued licenses to a few rare earth producers, including suppliers to Volkswagen, but this is still insufficient to ensure adequate supplies of necessary components.

The report noted that this is the first time that the VDA, an industry lobbying organization, has explicitly stated that China's export controls may pose a risk of production halts, without specifying a timeline. The world's largest automotive parts supplier, Bosch Group, said in May that the new regulations had affected suppliers, but declined further comment. Mercedes-Benz stated in a written statement that it is closely monitoring the situation and that there is currently no direct impact on Mercedes-Benz. Volkswagen did not immediately comment.

The report also pointed out that China's export controls have caused strong reactions among corporate boards and government officials in countries from Tokyo to Washington. Officials are urgently seeking limited alternatives, fearing that the production of new cars and other products may stall before the end of summer. Diplomats, auto manufacturers, and other industry executives from India, Japan, and Europe are urgently seeking meetings with Chinese officials to expedite the approval of rare earth magnets exports.

In 2023, China accounted for more than 60% of global rare earth production and 92% of refined supply. CNN map

In fact, on May 9, the Office of the National Export Control Coordination Mechanism organized a meeting of different departments to launch a special operation against strategic mineral smuggling exports, which drew international attention at the time.

On the same day, the South China Morning Post reported that analysts believe that China's move aims to strengthen enforcement of previous export control measures for key minerals, which are crucial to the U.S. defense industry. Some U.S. media also noticed that this happened on the eve of the economic and trade talks between China and the U.S. in Switzerland, carrying significant implications.

During the special operation meeting to combat strategic mineral smuggling exports, it was pointed out that since the implementation of export controls on gallium, germanium, antimony, tungsten, and medium and heavy rare earths, some overseas entities have colluded with domestic lawbreakers in China to constantly innovate smuggling methods to evade crackdowns.

"To avoid illegal flow of strategic minerals, curb smuggling trends, safeguard national security, promote compliant trade, and ensure stable supply chains, combating strategic mineral smuggling exports has become an urgent and important task," the Ministry of Commerce's statement read.

Just like during the period after former U.S. President Trump initiated the trade war in April this year, White House Press Secretary Caroline Letvitt, National Economic Council Director Kevin Hassett, and other officials from the Trump administration have once again been heavily promoting to the media: they hope to communicate with China and are about to have a call.

Politico reported on June 3 that the message spread by the Trump team obscured the current predicament facing the U.S., which is trying to pressure China into returning to the negotiating table while avoiding long-term political damage domestically. This has once again raised questions about what exactly Trump wants in this increasingly "who blinks first" game of cowardice in the trade war.

An anonymous source told the media that the Trump administration is under "enormous pressure" because China has made it clear that it is unwilling to export more critical minerals such as rare earths to the U.S.

An analyst told the South China Morning Post on June 2 that rare earth exports are China's "ace" against Trump, and unless the U.S. makes concessions on major issues of concern to Beijing, it is unlikely that China will speed up the approval process for rare earth exports.

For example, antimony is crucial for manufacturing ammunition, communication equipment, night vision devices, etc., for the U.S. military, American Metal Technology News

Commerce Department spokesperson He Yong stated on May 29 at a regular press conference that implementing export controls on items with obvious dual-use attributes is an international practice. As a responsible country, China's implementation of export controls on relevant items reflects its consistent position of maintaining world peace and regional stability.

After the Geneva economic and trade talks, the Trump administration successively introduced several discriminatory restrictive measures against China, including issuing AI chip export control guidelines, stopping sales of EDA design software for chips to China, and revoking visas for Chinese students. These measures severely undermined the consensus reached.

"Unilaterally escalating new economic and trade frictions, increasing uncertainties and instabilities in bilateral economic and trade relations, instead of reflecting on itself, the U.S. blames China for violating the consensus. This seriously deviates from facts. China firmly rejects unreasonable accusations," the Commerce Department spokesperson said on June 2. We urge the U.S. to meet us halfway, immediately correct the erroneous practices, jointly maintain the Geneva economic and trade talks consensus, and promote healthy, stable, and sustainable development of Sino-U.S. economic and trade relations. If the U.S. insists on going its own way and continues to harm China's interests, China will continue to take resolute measures to safeguard its legitimate rights and interests.

This article is an exclusive contribution from Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7512251060262552127/

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