China bans dual-use goods exports for Japan military over Taiwan remarks

BEIJING — China has banned exports of dual-use items to Japan that can be used for military purposes, according to a commerce ministry statement on Tuesday, Beijing’s latest move in reaction to an early November remark by Japanese Prime Minister Sanae Takaichi about Taiwan.

Dual-use items are goods, software or technologies that have both civilian and military applications, including certain rare earth elements that are essential for making drones and chips.

Exports of such items to military users or for any purposes that contribute to Japan’s military strength are banned, effective immediately, the statement said, adding that organizations or individuals from any country or region that violated the ban would be held legally liable.

Japan’s foreign ministry said it strongly protested the measures and demanded that China withdraw them. It called the move “absolutely unacceptable and deeply regrettable.” It said the measures targeted only Japan and that they “deviate significantly from international practice.”

‘PROVOCATIVE’ REMARKS
Ties between Beijing and Tokyo have deteriorated since Ms. Takaichi said a Chinese attack on the democratically governed island of Taiwan could be deemed an existential threat to Japan, in a remark that Beijing said was “provocative.” China regards Taiwan as part of its territory, a claim that Taipei rejects.

The Chinese foreign ministry later questioned Japan’s motives around Taiwan, saying its “provocations” could be a pretext for building up its military forces and overseas missions.

In late December, the Japanese cabinet approved a record spending package for the fiscal year starting in April, including a 3.8% increase in the annual military budget to 9 trillion yen ($58 billion).

In a commentary in December, China’s state-run Xinhua news agency said it had been “alarming” in recent years that Japan had “drastically” readjusted its security policy, increased its defense spending year after year, relaxed restrictions on arms exports, sought to develop offensive weapons and planned to abandon its three non-nuclear principles. China’s own annual defense budget has more than doubled over the last decade. Japan reaffirmed its non-nuclear pledge in mid-December.

Beijing’s statement on Tuesday did not specify which items fall under its new curbs. Around 1,100 items are on China’s export control list for dual-use goods and technologies, covering at least seven categories of medium and heavy rare earths such as samarium, gadolinium, terbium, dysprosium, and lutetium.

Despite Japan’s efforts to diversify, China still supplies around 60% of its imports of rare earths, macroeconomic research firm Capital Economics estimates.

“China has not provided a list of restricted items so at this stage it is impossible to say what impact the export curbs will have,” an official at the Japan External Trade Organization told Reuters, asking not to be identified because they are not authorized to talk to the media.

A Japanese government source who spoke on condition that they were not identified called the move “symbolic,” adding: “Until now, China has avoided doing things that would seriously hurt Japan’s business community. By taking this step and causing trouble for Japanese industry, they may be aiming to fuel domestic criticism of Takaichi.”

China throttled exports of rare earths to Japan during a previous diplomatic dispute more than a decade ago. So far, China Customs data has shown no sign of a decline in rare earth exports to Japan, though the data is released with some delay. In November, the latest month for which there was data, exports grew 35% to 305 metric tons, the highest tally last year.

FEARS OF RETALIATION
A Chinese state-affiliated social media blog wrote earlier on Tuesday that China was considering tightening approvals of rare earth export licenses to Japan due to Tokyo’s “recent egregious behavior”, citing sources with knowledge of the matter.

Some analysts and Japanese firms had feared that China would retaliate by restricting exports of rare earths, essential for Japan’s automotive sector, soon after the diplomatic dispute broke out in November.

One Japanese private sector source in Beijing told Reuters on condition of anonymity that it still took a “considerable amount of time” to obtain rare earth export license approvals as of late November, and that many other Japanese firms were in similar positions. But it was unclear whether that was a direct consequence of the diplomatic dispute, they cautioned.— Reuters