“China has already approved a certain number of compliant applications and will continue to strengthen the approval process for compliant applications,” it said in a statement.
Despite Beijing’s offer of dialogue, experts say China is unlikely to completely remove the restrictions and is “flexing its muscles.”
That was clear to members of the foreign business community in China who have attended briefings on the subject with Commerce Ministry officials.
“While we clearly conveyed that we are at an immediate risk of supply chain disruption, we didn’t have the impression from the Chinese side that they want to resolve this with as much urgency,” an automotive industry official involved in the discussions told NBC News last week.
The European Union’s Chamber of Commerce in Beijing said Friday that while there has been “some improvement in the situation,” the reprieve has not been enough to “prevent severe supply chain disruptions.”
A handful of European companies have received some approvals, said Jens Eskelund, president of the European Union Chamber of Commerce in China. But “it is not sufficient to solve those problems completely or avoid disruption in the supply chain,” he said in emailed comments.
At the core is a Chinese licensing system that requires export applications for the designated materials to undergo a vetting process that manufacturers say is painstakingly slow and results in only a fraction of approvals.
“The fix we are working on is to make the approval process smoother,” said the automotive industry official, who asked not to be identified because they were not authorized to comment on the sensitive discussions.
Why China dominates rare earths
Rare earths are a group of 17 elements in the middle of the periodic table, including neodymium, cerium and scandium.
What makes them special is the magnetic quality provided by their atomic structure, which makes them more powerful than standard iron magnets and ideal for use in the motors, sensors and actuators found in car seats, MRI machines and disk drives.
Contrary to what their name suggests, rare earths are present in abundant quantities in the earth’s crust. But their structure also means that wherever they naturally occur, they are usually mixed with other elements, often radioactive ones, and extracting them is a toxic, environmentally harmful and expensive process. It’s also a process that comes with thin profit margins and massive upfront investment.
Until the 1980s, the global rare earths industry was dominated by the United States. But that changed as China ramped up its rare earth operations, supported by government subsidies.
“As far back as the late 1980s, Chinese leaders understood how valuable rare earths could be,” said Patrik Andersson, an analyst at the Swedish National China Centre at the Swedish Institute of International Affairs.
The U.S. and Europe were gradually pushed out as China’s lower labor costs, weaker environmental standards and robust government backing helped its companies become the dominant force in rare earths.
