China plans to state take over all its rare earth resources – the regulations come into force on October 1

China has passed a new regulation, effective Oct. 1, confirming state ownership of rare earth materials required for semiconductor production, Nikkei reports. The move is aimed at safeguarding national and industrial interests, although outside China it is seen as leverage in the ongoing trade war with the U.S.

The new regulation prohibits individuals or organizations from illegally accessing or destroying rare earth resources. We could interpret this rule as essentially an explicit declaration of state ownership of important rare earths such as gallium and germanium. It is worth noting that the declaration of state ownership was not part of the original draft, but was included in the final version to emphasize control over these strategic materials.

China’s action may be a response to U.S. export regulations limiting Chinese access to advanced semiconductor wafer manufacturing equipment required to produce chips in process technologies below 14 nm/16 nm. While China says it is tightening controls on rare earths to protect its industrial interests from international pressure, industry observers outside China believe the country could use export controls as leverage in negotiations with the U.S., Europe and Japan.

The regulation covers the entire supply chain of rare earth elements, from mining and smelting to processing, distribution and export. It emphasizes safety, innovation and sustainability as guiding principles for the management of these resources.

In 2023, China produced about 70% of the world’s rare earth elements, which are essential to various devices. As for gallium, which is used in power ICs, China produces about 94% of the world’s supply, so the restrictions are likely to affect various industries. While production of high-performance components such as CPUs, GPUs and memory may not be significantly affected, gallium nitride (GaN) and gallium arsenide (GaAs) are critical for power supplies, radio-frequency amplifiers, LEDs and other applications.

Gallium price

(Image source: tradingeconomics.com/commodity/gallium)

Both gallium and germanium are crucial to the high-tech industry, but while the metals are not particularly rare, China keeps their prices low, making it relatively unprofitable to mine them elsewhere. China’s restrictions have impacted the prices of these metals, but this has encouraged companies in other countries to begin mining them, ultimately potentially reducing China’s market dominance. According to Nikkei, despite efforts to increase domestic production, for now the United States still depends on China to process these materials.

By ensuring state control, China intends to maintain its dominance in the rare earth metals sector. The question is, will it work?