Why does China ban outside access to its advanced rare earth magnet technology?

On December 21, the Chinese Ministry of Commerce further tightened its ban on the export of rare earth processing technologies.

While previous bans included the export of extraction and separation technologies, the new prohibition included the technology for making permanent magnets – a downstream process in the rare earth supply chain.

China is the world’s largest supplier and processor of rare earths. Of all the advanced processed goods, the magnets are in the greatest demand and have the highest added value, with applications in green energy products such as electric vehicles and wind turbines, as well as robots and military weapons.

The new ban not only aims to solidify China’s dominance in rare earth magnet production in general, but is also an attempt to strengthen high-performance magnet production to catch up with Japan. Although China produces and uses most of the world’s rare earth magnets, Japan still leads in the technology of the higher-performance varieties.

The restrictions are also part of the US-China tech war.

“The broader context here is that for the longest time, China did not respond much to US sanctions on chips,” said Damien Ma, director of the Paulson Institute’s Think Tank and an expert in foreign policy.

“But now that dynamic has changed, a decision has clearly been made to engage in reciprocal, albeit asymmetrical, retaliation on trade sanctions.

“And the one area in which China has some leverage is the clean energy supply chain, including processed metals like those that go into permanent magnets.”

Countries led by the United States and Australia, however, have made notable progress in rare earth mining. This, together with Beijing’s policies to slow down mining and exports, has seen China’s share of global rare earth production drop from around 90 per cent a decade ago to about 70 per cent in 2022, according to the US Geological Survey.

There has also been a shift in what other countries want from China’s rare earth supplies. A study led by Zhou Mei-jing, a researcher at the Beijing Institute of Petrochemical Technology, showed that the focus was shifting from lower-end to higher-end products.

Other countries imported fewer materials and rare earth oxides but slightly more rare earth magnets from China compared to more than decade ago, Zhou and her team said in a paper in the domestic Resources Science journal in September.

In the rare earths supply chain, separation and extraction are upstream processes that convert raw materials into rare earth oxides and metals, but magnet production is a downstream process with the most value added.

In recent years, countries have also pushed to build processing plants outside China.

A Chinese-led study published in Ore Geology Reviews in October 2022 said there were about 67 rare earth processing facilities outside China either under construction or operating. However, only six were built for magnet production, while the rest designed for upstream processing.

This is clearly a good industry for China to be in and further strengthens its clean energy supply chain
Damien Ma, Paulson Institute’s think tank

With upstream processing technologies already barred from export, the December ban marks China’s attempt to further solidify its advantages in downstream magnet production, amid a new focus on competing in rare earth supply with the US, Japan, the European Union and other developed economies.

“Beijing has recognised that China’s true advantage in rare earths lies in its processing technologies and the complete industrial chain,” said Duan Xiaolin, assistant professor of global studies at the Chinese University of Hong Kong, Shenzhen. “The ban is aimed at maintaining China’s privileged status in the global market.”

Rare earth magnets were a US$17.5 billion industry globally in 2022 and expected to keep growing, according to Research and Markets. The magnets are the most sought after rare earth processed product because of their crucial role in clean-energy technologies, especially electric vehicles.

China’s export of rare earth magnets more than doubled in the past two years, from about 27,000 tonnes in 2016, and they were its most exported rare earth product, according to customs data.

A 2022 report from the US Department of Energy said China dominated every stage of the supply chain of rare earth magnets – from mining, separation and refining, to magnet making. It had a 92 per cent share of the annual global magnet production in 2020, while the US accounted for less than 1 per cent, the report said.

“Currently, China is the permanent magnets industry,” Ma at the Paulson Institute said.

“And magnets are a key component when it comes to electric power. So, as the energy and transport sector increasingly electrifies, magnets are going to be in high demand.

“This is clearly a good industry for China to be in and further strengthens its clean energy supply chain.”

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The new ban includes the technologies for making three types of rare earth permanent magnets: samarium cobalt, cerium and neodymium iron boron (NdFeB). NdFeB magnets are the strongest and the most in demand among permanent magnets and are an essential component for electric vehicles.

Research from Paulson Institute indicates that global demand for high-performance NdFeB magnets will increase five-fold by 2030 from less than 50,000 tonnes in 2020, outstripping the world’s supplies.

China has surpassed Japan in NdFeB magnets production since 2001 and become its largest producer and exporter.

Nevertheless, the researchers point out, while China leads the lower-end magnets segment, Japan still controls the vast majority of high-performance magnet patents. The patent barrier is holding China back from significantly expanding its high-performance NdFeB magnets production.

Ma, who co-authored research into Chinese magnet production, published on the think tank’s website in November 2021, said: China probably hopes to overtake Japan on high-performance permanent magnets, but that will still take some time.”

China has trying to close the gap with Japan’s patents and production of high-performance magnets since the 2010s, but progress has been slow.

By 2018, Japan produced 48 per cent of the world’s total high-performance magnets while China produced 36 per cent, according to the Paulson Institute’s research.

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With the ban, China is aiming to accelerate development of high-performance magnet production by providing a better space to develop domestic patents.

“Chinese rare earth companies often lack awareness to protect intellectual property rights, so the ban can help keep the competitiveness of the domestic industry,” said Wang Guoqing, director of the Lange Steel Information Research Centre.

A month before the ban was announced, Premier Li Qiang told an executive meeting of the State Council – China’s cabinet – that China would increase its efforts to break barriers and industrialise high-end rare earth materials.

This month, the government of Baotou, in northern Inner Mongolia where more than 80 per cent of China’s rare earth deposits are located, said the city would push the research and development of high-performance magnets at major rare earth processing plants.

Duan, who has studied Chinese export policy in the field, said the ban could have both positive and negative effects.

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“What’s good about the ban is that it can help China solidify its dominance in rare earth processing technologies,” Duan said. “However, it could have an adverse impact on the technical and academic communication between China and other countries in rare earths.

“In the 1980s and 1990s, frequent communication between the Chinese Society of Rare Earths [a research centre] and Japan’s rare earth industry played an important role in the development of China’s rare earth industry.”

Antonio Castro Neto, a materials scientist and professor at the National University of Singapore, pointed to another possible effect.

“It will increase the effort from Western countries to create new technologies that do not depend on rare earth,” he said.

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