China proposes new regulations to tighten grip on rare earth industry

Traceability database will allow China to manage exports with surgical precision

Earlier this week, China initiated a public consultation on draft regulations aimed at further tightening its grip on the rare earth industry, a sector it already dominates globally. The Ministry of Industry and Information Technology (MIIT) released the draft rules, which focus on several key areas:

Control and ownership: The regulations propose that only large state-owned enterprises will be allowed to mine, smelt, or separate rare earth elements, effectively banning private firms from these activities. This move reinforces China’s claim that rare earths are state resources, a position it has held for years, and is aimed at further centralizing control and preventing unauthorized extraction or smuggling.

Stricter production quotas: The draft includes stricter quotas for mining, smelting and separating rare earths. These quotas are intended to regulate the supply chain more tightly, ensuring that production aligns with national strategic interests rather than market dynamics. This builds on China’s existing system of state-controlled output, which already dictates how much of these critical materials can be produced domestically. While exact quota numbers for 2025 aren’t specified yet, the language of “stricter quotas” implies either lower caps or less frequent increases compared to past years, keeping quotas tighter to conserve resources or strengthen export leverage amid trade tensions.

Enhance monitoring and enforcement: The rules introduce enhanced monitoring and enforcement mechanisms, including the establishment of a rare earth traceability database. This database, set to be operational from October 1, 2025 (as mentioned in earlier 2024 regulations), will track the extraction, processing and export of rare earths to prevent illegal activities and ensure compliance. Penalties for violations, such as illegal mining or smuggling, could be severe, with fines ranging from five to ten times the revenue generated from such activities.

Export controls and national security: The regulations come in the context of escalating trade tensions with the United States and other Western countries. China has previously used rare earths and other critical metals as leverage in trade disputes, banning exports of certain processing technologies (like those for rare earth magnets) and imposing export restrictions on materials like gallium, germanium and antimony. The new rules are seen as an extension of this strategy, with Beijing citing national security and the need to protect its strategic resources.

Global impact: China currently accounts for nearly 90% of global refined rare earths production making these regulations concerning for industries worldwide that rely on these materials for high-tech applications, defense, clean energy, electromobility and more. The US, EU, and other nations have been working to reduce dependency on Chinese rare earths by investing in alternative supply chains, but progress has been slow in building out the scale required.

The new regulations, and particularly the traceability database coupled with the export licensing system already in place, should be cause for concern as they enable China to strategically and expeditiously cut off supplies to specific industries or companies it exports to, enhancing its ability to wield rare earths as a geopolitical and economic weapon.

Here’s how this could work and why it’s plausible:

Granular control over supply chains: The traceability database, set to be operational by October 1, 2025, will give China detailed visibility into where every tonne of rare earths ends up – down to the specific buyer, industry, or even product type. With this insight, the Ministry of Commerce (MOFCOM) and MIIT could identify and target exports destined for specific companies (e.g., a US defense contractor) or industries (e.g., electric vehicle manufacturers) with precision.

Integration with export licensing: China already requires export licenses for rare earths, managed by MOFCOM. The traceability system complements this by providing real-time data to inform licensing decisions. If Beijing decides to restrict supplies to a particular sector – like US defense or EU clean energy – it could simply deny or delay licenses for shipments linked to those end users, citing “national security” or “resource protection” as justification.

Selective enforcement: The database, paired with severe penalties for non-compliance (fines of 5-10 times illegal revenue), ensures domestic producers (now limited to state-owned enterprises) follow export directives precisely. This eliminates loopholes like smuggling or unauthorized sales that might otherwise bypass targeted restrictions, making strategic cutoffs more effective.

China has a history of using rare earths as leverage. In 2010 during a territorial spat, China halted rare earth exports to Japan, disrupting its electronics and automotive industries. The lack of a traceability system back then made it a blunt, broad cutoff, but it still demonstrated Beijing’s willingness to weaponize supply. Similarly, in 2023 China banned exports of rare earth magnet manufacturing technology and restricted shipments of gallium and germanium, targeting Western tech and defense sectors in response to US semiconductor curbs.

The incoming traceability database refines this strategy from a sledgehammer to a scalpel. Instead of a blanket embargo, China could now potentially cut off rare earth exports for US military applications (e.g., NdFeB for fighter jets) while sparing the automotive industry, for example, or could target a single company, like a US EV maker, to punish specific trade policies without broader economic fallout.

The public consultation period for these draft regulations began on February 19, 2025, and details on how long it will last or when the final rules might be implemented are not yet clear. In any case, the move is yet another dimension of China’s long-standing policy of tightening control over rare earths and reinforces 2024 regulations that declared rare earths as state property.

More on this topic at Rare Earth Mines, Magnets & Motors 2025

Join us in Toronto in September 2025 for Rare Earth Mines, Magnets & Motors 2025 where we’ll explore this topic further with leading industry experts.

The two-day event will bring together business and technical leaders from across the global mine-to-OEM supply chain for high caliber discussions and networking at a 5-star venue.

Key themes of this year’s conference will include robotics, automation, advanced air mobility, and the emerging mine-to-magnet supply chain coming together upstream.

Special guest: Steve Wozniak, co-founder of Apple

More information: www.adamasevent.com