A closer inspection suggests that the scope of China’s new controls on rare earths is narrower than many had initially feared. But they still give officials plenty of leverage over global supply chains, said Julian Evans-Pritchard, head of China economics at Capital Economics in a note on October 15.

The rare earth metals (REMs) controls are made doubly damaging as they come alongside new controls on battery technology that is now also dominated by Beijing and could be used to further weaponize China’s dominance in another increasingly important sector.

To recap, China announced new controls on October 9 expanding licensing requirements for the export of rare earths, superhard materials, battery tech and some related capital goods. Given the confusion and conflicting media coverage around the scope of the new controls, Capital Economics decided to dig a bit deeper into the communications from China’s Ministry of Commerce (MOFCOM).

“This has altered our understanding of the controls and helped to clarify some important points. The scope of the rare earth controls appears narrower than we had previously thought. In particular, the rule targeting products that derive more than 0.1% of their value from rare earths seemingly only applies to certain magnets and materials being manufactured overseas using Chinese rare earths,” says Evans-Pritchard.

China’s intention therefore isn’t, as President Trump claimed on Truth Social, to “impose large scale export controls on virtually every product they make”, says Evans-Pritchard. Instead, the focus of Chinese regulators appears to be on making their existing rare earth controls more “airtight,” by preventing the foreign buyers that they want to cut off from acquiring rare earths or rare-earth adjacent products indirectly via third countries.

Compared with targeting all goods that contain rare earths, the administrative burden of enforcing controls on a narrower list of rare earth magnets and materials will be more manageable. And to make enforcement more practical, only designated overseas firms – presumably the largest foreign buyers of rare earths – will be subject to licensing requirements.

“That’s not to downplay the significance of the new rare earth controls, however. April’s less onerous controls had threatened to disrupt key parts of global industry when China slow-walked licence approvals,” says Evans-Pritchard. “If they took the same approach with the new controls, the potential impact would be even larger.”

MOFCOM has suggested that it may specifically target advanced chipmaking activity when it comes to licence rejections, presumably a veiled threat to the US warning them not to take further steps to curtail China’s access to imported chips and chipmaking equipment.

Even if trade talks succeed in defusing that threat, and China doesn’t intentionally limit licences to most buyers, the narrower-than-feared scope of the new controls may not prevent administrative delays – there is reportedly still a substantial backlog of licence requests resulting from the April controls.

“What’s more, while rare earths have stolen the limelight, they weren’t the only target of last week’s MOFCOM announcements. The export controls on battery tech are also noteworthy as China has a chokehold over much of the battery supply chain,” says Evans-Pritchard.

When it comes to finished batteries, the new controls only cover high-end ones used for defence, aerospace and grid-scale energy storage. But these may become more widely used in the next generation of EVs. Of greater immediate importance is that the controls also cover key battery materials, for which China controls over 90% of global supply, that are used to produce less cutting-edge batteries.

Depending on the extent to which licences are withheld, the controls could hold back the production of batteries and EVs elsewhere in the world, and hinder investment in the energy storage capacity needed to support the AI boom.

“While China’s government may not be laying claim to as much of global manufacturing as it had first seemed when news of its export controls broke late last week, it remains the case that it is putting in place powerful tools that could be used to significantly disrupt key industries across Western economies,” says Evans-Pritchard.