Satellite Image Analysis: China's Weaponization of Critical Minerals and Its Underlying Drivers

China has successively strengthened export controls on critical minerals, including rare earth elements, as well as related products. In April 2025, Beijing introduced stricter export control measures for seven rare earth elements,[1] forcing temporary disruptions in automobile production across Japan, the United States, and Europe.[2] Furthermore, in January 2026, China announced export restrictions on dual-use goods containing rare earth materials destined for Japan, describing the measure as a response to Prime Minister Sanae Takaichi’s remarks[3] concerning a potential Taiwan contingency. According to trade statistics, Chinese exports of rare earth magnets to Japan declined sharply in March of the same year.[4]

Critical minerals are indispensable for a wide range of technologies, including large-scale wind turbines, electric vehicle motors, and data-processing equipment. They are therefore essential for realizing both digital transformation (DX) and green transformation (GX), two defining global trends of the twenty-first century. Moreover, because they are also vital components in fighter aircraft, rocket engines, and other advanced military systems, their availability has direct implications for national security.

Two key factors explain why China is able to employ critical minerals as instruments of trade policy and diplomacy. First, China has established a dominant position in the global market not only in mineral extraction but also in refining, processing, and manufacturing technologies associated with critical minerals. Second, the dysfunction of the World Trade Organization (WTO) has expanded the space for China to utilize critical minerals at its own discretion in pursuit of economic interests, geopolitical influence, and diplomatic objectives.

This paper first reviews the basic characteristics of critical minerals, including rare earth elements. It then examines how China developed a system capable of weaponizing these resources. Finally, it explores how Japan should respond in an international environment where the effectiveness of the WTO has significantly eroded.

Among critical minerals, rare earth elements refer to a group of 17 elements distinguished by their unique electrical and chemical properties, which make them indispensable for applications such as permanent magnets. Of these, seven are classified as light rare earth elements, while the remaining ten are categorized as medium and heavy rare earth elements. Although all rare earth elements are essential for advanced technology industries, medium and heavy rare earths are of particular strategic significance because of their indispensable role in national security-related technologies.[5] While light rare earth elements are relatively widely distributed across the globe, medium and heavy rare earth elements are more commonly found in ion-adsorption clay deposits, which are heavily concentrated in southern China.[6] For example, the Xinfeng Mine in China’s Jiangxi Province contains more than 45 percent medium and heavy rare earth elements, whereas the Mountain Pass Mine in California, the world’s second-largest producer of rare earths, contains only 1.3 percent.[7] This geological advantage explains why China’s export controls can exert a significant impact on global supply chains. Notably, all seven rare earth elements subjected to enhanced export controls in April 2025 belong to the medium and heavy rare earth category (see Table 1).

China’s export restrictions are not limited to rare earth elements. Since 2023, Beijing has successively imposed export controls on products related to gallium, germanium, antimony, tungsten, and other critical minerals.[8] All of these are commodities in which China occupies a dominant position in either mining, refining, or both.

The export restrictions announced in January 2026 were directed exclusively at Japan and covered unspecified dual-use products containing critical minerals rather than particular mineral categories. Although China’s Ministry of Commerce stated that civilian applications would not be affected, trade statistics suggest that the measures were implemented far more stringently toward Japan than toward other destinations. In March 2026, China’s global exports of rare earth magnets declined by only 1.6 percent year-on-year, whereas exports to Japan fell by 27.2 percent.[9] A similar pattern can be observed in tungsten-related products. Cemented tungsten carbide, a processed tungsten product widely used in industrial applications, recorded approximately 14 tons of exports from China to Japan in January 2026. However, exports fell to zero between February and April of the same year.[10] These developments indicate that China has not only acquired leverage through its dominance of critical mineral supply chains but is increasingly willing to employ that leverage in a targeted manner to advance specific diplomatic and strategic objectives.

China did not simply rely on the fact that critical mineral deposits are heavily concentrated within its territory. Instead, it pursued a strategy aimed at monopolizing the entire supply chain, from upstream activities such as mining and refining to downstream manufacturing, thereby creating a system in which advanced technology products could not be produced without Chinese involvement. The origins of this strategy can be traced to a statement made in 1992 by Deng Xiaoping, China’s paramount leader at the time: “Just as there is oil in the Middle East, there are rare earths in China. Rare earths will undoubtedly provide China with a strategic advantage.”[11] This remark subsequently became a guiding principle for China’s rare earth policy.

A key instrument in implementing this strategy since the 1990s was the combined use of export controls and restrictions on foreign investment. Through an export licensing system, the central government strengthened oversight of the rare earth industry, preventing financially weak local operators from engaging in excessive mining or exporting rare earth materials at low prices. At the same time, Beijing promoted the consolidation and restructuring of domestic rare earth enterprises. In the refining sector, foreign investment was restricted, and foreign companies were generally permitted to enter the market only through joint ventures with Chinese firms. By using export controls to create a price differential between domestic and international markets, China incentivized foreign companies to relocate production to China through joint ventures, thereby facilitating the transfer and localization of processing technologies related to critical minerals.[12]

The refining sector most clearly demonstrates the effectiveness of these policies. The refining of rare earth elements generates substantial quantities of pollutants, including toxic gases, industrial sludge, and radioactive waste. This is because separating individual rare earth elements from mixed ore deposits requires the use of large amounts of chemical reagents.[13] Until the 1980s, the United States and France had been among the leading players in the global rare earth refining industry. However, growing environmental concerns in Western countries increased the costs associated with refining operations. At the same time, China’s export controls drove up the price of rare earth materials outside China. As a result, many companies either withdrew from the refining business altogether or transferred refining technologies to China. Consequently, China came to dominate more than 90 percent of global rare earth refining capacity by country (see Figure 1).

Yet China was not satisfied with achieving dominance in refining alone. On the contrary, dissatisfaction grew within China over what was perceived as an unequal distribution of value. Chinese policymakers increasingly argued that developed countries were purchasing refined rare earth materials from China at relatively low prices and generating substantial profits by converting them into higher-value manufactured products, while China itself was left to bear the environmental costs associated with production.[14] This sentiment contributed to a further tightening of China’s export controls on critical minerals from the 2010s onward.

Particular emphasis was placed on high-performance permanent magnets manufactured from rare earth materials. These magnets serve as indispensable components in electric vehicle motors, wind turbine generators, and numerous other advanced industrial applications. Historically, Japanese and German firms maintained technological leadership in this sector, producing magnets with superior heat resistance and magnetic performance, and China itself depended on imports for many high-end products. However, as China strengthened export controls, many foreign companies were compelled to shift production to joint ventures with Chinese partners. The resulting transfer of technology enabled Chinese firms to acquire a leading position in rare earth magnet manufacturing. Today, Chinese companies account for more than 80 percent of the global market, while Japanese firms retain only slightly above 10 percent.[15] Through this process, China succeeded in establishing a dominant position across the entire rare earth supply chain, from upstream extraction and refining to downstream manufacturing.

China’s ability to deploy export controls on critical minerals as it sees fit was not always taken for granted. In fact, during the early 2010s, the WTO served as an effective forum in which the legality of China’s export restrictions was scrutinized. Where Chinese measures were found inconsistent with WTO rules, Beijing implemented corrective actions to a certain extent, demonstrating that the international trade regime still retained an important rule-making and enforcement function.

A notable example occurred in September 2010. After a Chinese fishing vessel operating within Japan’s territorial waters near the Senkaku Islands refused orders from the Japan Coast Guard to leave the area and subsequently collided with a Coast Guard patrol vessel, the captain was arrested on suspicion of obstructing public duties. China reacted strongly and imposed restrictions on rare earth exports to Japan. The impact was immediate. Japanese imports of rare earths from China fell from 2,246 tons in September 2010 to 1,278 tons in October, representing a decline of nearly fifty percent.[16] In March 2012, Japan, together with the United States and the European Union (EU), requested consultations under the WTO dispute settlement mechanism. The complaint targeted not only what was widely perceived as retaliatory export restrictions following the Senkaku incident, but also the reductions in export quotas for rare earths and other critical minerals that China had maintained prior to 2010. The complainants argued that these measures were inconsistent with China's obligations under WTO agreements.

China, however, defended its policies by arguing that export taxes and quantitative restrictions were necessary responses to the significant environmental burdens associated with rare earth mining and refining. According to Beijing, the primary objectives of these measures were to prevent excessive exploitation of mineral resources and to strengthen environmental protection efforts through revenues generated from export taxes.