On August 29 in Baotou, Inner Mongolia, China’s rare earth capital, an innovation and entrepreneurship competition called “Rare Earths Lead the Future, Innovation Wins in the Deer City” (稀引未来 创赢鹿城) has ended. The RMB 300,000 top prize went to a team from Suzhou (苏州), for a project titled “Next Generation High Performance eVTOL Motors Based on New Rare Earth Materials” (基于稀土新材料的新一代eVTOL高性能电机与产业化). [1] Speaking in plain English: using rare earths to build a motor for “flying cars”. The top prize at a rare earth competition went to a motor project which produces not a single gram of rare earth.

This competition offers a new perspective into a shift (happening now!) in China’s rare earth strategy. As Western countries push to build a de-Sinicized rare earths supply chain, Beijing is moving its focus from resource advantage to talent advantage. Turning its lead in rare earth reserves and processing into capacity and technology edges in high-end manufacturing: motors, aircraft, etc. And the “low-altitude economy,” (低空经济) a new concept in China’s policy vocabulary these years, serves this shift very well.

Robotics Lost to Flying Cars

Let’s start with what the competition result tells us.

The competition kicked off its group stage back in April, with four regional rounds held in Ningbo (宁波), Nanjing (南京), Hangzhou (杭州), and Xiamen (厦门), four cities full of talents in magnetic materials, motors, and optoelectronics. According to the guidelines, the competition favored projects in new rare earth materials, rare earth applications, and frontier interdisciplinary research, plus two more: robotics and the low-altitude economy. At first glance, those last two seem to have nothing to do with rare earths at all.

Among the top three final winners, the low-altitude economy took two spots: the first prize eVTOL motor mentioned above, and one of the second prizes, a smart low-altitude mobility platform. Robotics, a term that, alongside Large Language Models, has been one of the hottest vocabularies in Chinese industrial policy over the past two years, just walked away with nothing.

Consider who was judging: materials scientists, investors, and third-party professional institutions, with commercial viability listed explicitly in the scoring metrics. The result suggests that in these people’s eyes, the “rare earths—permanent magnet motors—low-altitude aircraft” industrial chain is the future that can be built from today. Far more realistic than humanoid robots. A government-run competition ended up delivering a market-driven message.

Now comes the important part. Behind this message lies a grand rare earth strategy. Robots and aircraft both depend heavily on rare earth permanent magnet motors, but the motor’s role in these two sectors could not be more different. In an eVTOL, the motor is one of the components that define the aircraft itself, power density directly determines whether it can fly and how much it can carry. In electric aviation, in other words, an advantage in magnet performance translates almost directly into an advantage in the end-use product. Robots don’t work that way. Their real technical bottleneck is AI model, precision transmission, and actuator integration; magnets are just one part inside a joint actuator. Better magnets make better motors, sure, but they don’t decide how well a robot moves and how smart it is. The US-China technology race in robotics ultimately comes down to AI models, where the two players are locked in a standoff. The low-altitude economy comes down to manufacturing power—motors, batteries, assembly lines—where China already leads, and where its rare earth advantage can widen the gap further.

A 1-Million Prize, a 10-Million Lure

Having looked at the results, now look at the rules. Buried in the requirements for the regional rounds is this line: entrants must “intend to establish operations in Baotou within one year of the competition” (赛后1年内有意向在包头市落户创新创业).

The total prize pool is one million RMB. Sounds like a lot, but for a technology-intensive startup, that money means nothing. Once land the winning project in the Baotou Rare Earth High-Tech Zone (包头稀土高新区), however, the team can apply for up to ten million RMB in dedicated funding. Whether contestants were competing for the one million or the ten million is calculation simple enough for Chinese engineers, who grew up on math competition drills.

So, the award ceremony on August 29 was less the finish line of a competition than the starting line of an investment drive. Three rounds of signings took place that day, with seven projects announcing they would set up in the High-Tech Zone. [2]

Which is to say, the competition is just one instrument Baotou uses to screen and attract talents. A week before the finals, the Fourth Baotou Talent Week (第四届包头人才周) opened, where the city’s science and technology bureau released thirty “talent innovation cooperation scenarios” (人才创新合作场景), putting local firms’ actual technical problems out in the open and inviting teams from across the country to propose solutions. Around the same time, a new training institute for rare earth materials engineers was established. For a city built on mining, the logic behind this policy combination is clear: rocks does not turn itself into motors and other high-value end products. That process takes engineers, a great many of them.

The Gap Between China and the US Isn’t in the Ground

Baotou is putting real money on the table to get talent to move there. In doing so, it’s acting on a direction Beijing set long ago.

Back in January 2024, at a Politburo study session, Xi Jinping had already said that in line with the requirements of developing new quality productive forces (新质生产力), China must “smooth the virtuous cycle between education, science and technology, and talent” (畅通教育、科技、人才的良性循环), and must “work hard to cultivate outstanding engineers and master craftsmen” (着力培养造就卓越工程师、大国工匠) What we’re seeing in Baotou is what that official rhetoric looks like once it’s carried out. Beijing’s direction turns into budgets and delivery schedules at the local levels.

When it comes to rare earth talent training, China is simply far ahead of everyone else. At least 11 Chinese universities and vocational colleges offer undergraduate degrees related to rare earths, enrolling more than 500 students a year. When Reuters went looking outside China, it could not find a single institution offering an undergraduate degree in rare earths. The United States, meanwhile, awarded just over 200 undergraduate degrees in mining and metallurgical engineering nationwide in 2023, not rare earths track.

Maybe this is where the real contest over rare earths is at. Building a mining site takes maybe ten to twenty years. Building a talent pipeline takes longer. Most of what the West is debating right now is still the mining itself.

Conclusion

News like this out of Baotou rarely reaches the critical minerals analysts in Washington. It’s too small to notice, and it touches neither China’s rare earth quotas nor export controls.

But there’s an old Chinese saying about “glimpsing the whole leopard through a tube” (管中窥豹). Baotou gave the top prize to an eVTOL motor, which tells you that China’s rare earth capital in the North is betting its next rare earth application on low-altitude aircraft, not on the humanoid robots that have captivated the South. Ten million RMB in subsidies for teams that are willing to relocate tells you what Baotou is after: the talents. And this system for cultivating and finding rare earth talent is precisely the hardest problem facing a United States now scrambling to catch up with China’s rare earth supply chain advantage.

Note

[1] The winning team, Suzhou Innomag New Energy Technology Co. (苏州英磁新能源), is no newcomer. Founded in 2017 by Pei Ruilin (裴瑞琳), a PhD trained in the UK on a Chinese government scholarship, the company won first place (startup group) at the 7th China Innovation and Entrepreneurship Competition (中国创新创业大赛) national finals back in 2018. Its core technology is the high power density axial flux motors, the leading design route for eVTOL propulsion, was developed jointly with Shenyang University of Technology (沈阳工业大学), a top motor research institution in China, and passed an appraisal organized by the China Electrotechnical Society (中国电工技术协会) in September 2024, with a committee chaired by Prof. David Cardwell, Fellow of the Royal Academy of Engineering and vice Chancellor of the University of Cambridge.

[2] Corporate registry records suggest the competition’s talent recruitment pipeline is more than theater. Anbivis (安必视), a Beijing drone-survey company that pitched a UAV-swarm rare earth exploration system at the Ningbo round, is a certified national high-tech enterprise with subsidiaries in four provinces and at least one government surveying contract to its name (registry data via Qichacha, https://www.qcc.com/, need membership to access). On July 7, 2026, right after its pitch but before the finals were even held, it registered a wholly-owned subsidiary, Shentan (Inner Mongolia) Intelligent Technology (深探内蒙古智能科技), at the Returnee Entrepreneurs Park (留学生创业园) inside the Baotou Rare Earth High-Tech Zone. From first pitch to boots on the ground in Baotou costs only ten weeks.

Disclaimer: This article was written entirely by me as a human. AI-detection score below.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation.

According to Tianyancha, a widely used Chinese corporate information database that aggregates business-registration records, shareholder information, and other public company filings, Jiangxi National Rare Earth Technology Innovation Center Co., Ltd. was recently established, with registered capital of 1.25 billion yuan. Among its three shareholders, the presence of China Rare Earth Group and the Chinese Academy of Sciences’ Ganjiang Innovation Academy is hardly surprising—the two are already deeply intertwined within Jiangxi Province. The shareholder worth a closer look is the third one: China National Nuclear Corporation Resources Development Co., Ltd.

Why would a nuclear industry enterprise whose core business is uranium mining and nuclear fuel turn up on the shareholder roster of a rare earth innovation center?

The answer lies in a mineral called monazite. Monazite is a phosphate rare earth mineral containing elements such as cerium and lanthanum, but it carries one unavoidable trait: it commonly occurs alongside radioactive elements such as uranium, thorium, and radium. For that reason, the threshold for mining and utilizing monazite is far higher than for conventional rare earth ores—it requires radioactive materials handling capacity, accumulated nuclear technology, and the corresponding licenses. And that falls squarely within the scope of the CNNC’s business.

CNNC Resources Development sits within the nuclear fuel segment of CNNC. Public records show that the CNNC system has long been active in the utilization of radioactive associated mineral resources, recovering strategic resources from monazite as feedstock, with products including rare earth chloride. In other words, the CNNC system entered, long ago, a more specialized and more license-constrained branch of the rare earth supply chain. The relevant authorities have explicitly folded the utilization of monazite into the overall national strategy for the rare-earth industry.

The logic of CNNC Resources Development taking a stake therefore becomes clear: what it brings is a distinctive resource and technology pathway for rare earths. While monazite consists mainly of light rare earths such as cerium and lanthanum, and does not necessarily correspond directly to today’s most important heavy rare earth sector, it offers a supplementary resource route that is constrained by radioactive handling capability and that ordinary rare earth companies find difficult to enter.

Set against the current landscape of US-China competition over rare earth supply chains, this move carries three layers of meaning.

First, the level of this state enterprise cooperation is relatively high. According to documents from the Ministry of Science and Technology and the Ministry of Finance, a National Technology Innovation Center is positioned to “achieve the transformation from science to technology,” with key technology R&D as its core mission, and is required to operate as an independent legal entity. What can be confirmed at present is only that the company has completed its business registration. Only after it subsequently obtains approval from the Ministry of Science and Technology or is formally designated as such can it be regarded as having entered the ranks of the national scientific research layout. Even so, the 1.25 billion RMB registered capital indicates that, from its inception, this platform has been built as a high level vehicle organized around key technology breakthroughs and industrial transformation in rare earths.

Second, this innovation center reveals a more three dimensional way of organizing China’s rare-earth industry going forward. China Rare Earth Group provides the principal resources and industrialization capability; the CAS Ganjiang Innovation Academy provides research and technology; and CNNC Resources Development fills in the special source line of radioactive associated rare earths while bringing nuclear handling capability. Combined, the three aims to build a collaborative pathway running from resources to research and connecting through special ore processing technology.

Finally, this move once again reflects a shift in Beijing’s thinking about safeguarding its dominance over the rare earth supply chain. Beijing has placed seven medium and heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium under export controls in April 2025, later adding further elements such as holmium. As I have argued in earlier pieces, against the backdrop of Washington accelerating its push to “de-Sinicized” rare earth supply chain, what Beijing is doing is not merely holding on to its existing raw material sources and smelting-separation capacity, but also continuing to reinforce other advantages that are harder to replicate, such as technological edges, special resource routes, and the institutionalized capability derives from a strong center government. Compared with simply controlling raw material supply, this approach lets Beijing keep raising the technological barriers and its corporate resilience of the rare earth chain, thereby partly offsetting the impact of the United States rallying multiple countries to expand ex-China rare earth raw material supply.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

Claim: Written May 28, 2026. The accident is still under investigation by China’s State Council investigation team; the direct cause and the full assignment of responsibility have not yet been released. In this piece, everything drawn from official announcements and authoritative media has been confirmed; everything drawn from the industry professionals I interviewed represents their professional assessment; and anything that is my own line of reasoning is flagged as such. I leave it to the reader to tell them apart.

A Sign-In Board Frozen on May 22

The day after the accident, Chinese reporters at the mouth of the Liushenyu coal mine photographed the board that logs who has gone underground. The information on it had stopped on May 22, 2026, the day of the explosion. It read: 124 workers entered the mine this shift.

How many were actually underground?

247.

The 123 people in the gap between those two numbers are what this entire article is about.

Here is the sequence, as officials later reconstructed it. At 7:29 p.m. on May 22, a gas explosion tore through the Liushenyu mine. During the rescue that night, the responders noticed something strange: the people coming up out of the shaft and signing in did not match the name list the company had provided, unfamiliar faces kept appearing who weren’t on the list. After interrogation, it was not until around 2 a.m. on May 23 that they established a preliminary figure: 247 people had been underground, 144 of them carrying a personnel positioning device, and 103 carrying none. Further checks revealed that this mine, equipped with facial recognition and a personnel-positioning system, had records for only 124 of the people who had gone down. The rest had no registration, no public listing, and no positioning device.

In other words, at the moment of the explosion, more than a hundred miners simply did not exist within this mine’s safety-monitoring system.

This disaster is not, by the standards of the People’s Republic’s long history of mine disasters, especially absurd. What sets it apart is that the absurdity was manufactured, step by step, by a set of institutions that look perfectly airtight. Below, I will first lay out the facts that are already nailed down, and then relay what I heard from industry insiders about the why.

Three Facts

Within a week of the accident, three things had already been confirmed by Beijing.

First: as mentioned, the head count didn’t match, and many miners had no positioning device. The board listed 124; 247 were actually underground; 103 of them carried no positioning device; and 123 had no record at all in the safety system. A high-gas mine that could not even say how many people were below ground on a given shift.

Second: “yin-yang blueprints” and hidden tunnels. During the rescue, the underground map the company provided did not match reality, forcing responders to search section by section, and turning up tunnels that appeared on no blueprint. CCTV’s affiliated outlet CNR used the phrase “yin-yang blueprints” outright: one for the inspectors, one was real.

Third: two payrolls, and outsourced “dark faces.” According to CNR’s reporting, the mine kept two separate rosters: one for internal use, to calculate wages and track attendance; the other prepared specifically for officials who came to inspect. The report also noted that a substantial share of the mine’s “dark faces” (illegal working faces) was contracted out to outsourcing crews, whose foremen, racing to hit deadlines, drove their workers into illegal extraction.

String these three facts together and the picture is already clear: falsified blueprints + concealed working faces + “ghost miners” carrying no positioning device. This is a deliberate system, engineered to blind the regulators, to make the labor force beyond the legal limit vanish, to bury the extra working faces inside fake map, so that the safety monitors see no people on their screens and find no tunnels during a surprise inspection.

In the language of the Republic’s criminal code, this points to Article 134-2: the crime of compelling or organizing others to perform dangerous work. And that, precisely, matches the line the State Council investigation team has set for its inquiry: to investigate and severely punish concealed working faces, falsified safety monitoring, undercounted underground head counts, and illegal subcontracting and labor transfers.

A “Qualified” Coal Mine

On paper, Liushenyu was a “qualified” mine.

Its approved production capacity is 1.2 million tons per year; it uses inclined-shaft development, with six shafts, and is rated high-gas. In April 2024 it was placed by the National Mine Safety Administration on the National List of Disaster-Prone Coal Mines. In other words, it was a “dangerous mine” the state had explicitly singled out. For mines like this, the 2023 Regulation on Limiting the Number of Workers Underground per Shift imposes extremely strict caps on both the number of workers at a single extraction or tunneling face and the total per shift. A 1.2-million-ton disaster-prone mine, operating in compliance, would typically have somewhere on the order of a hundred-odd workers below ground per shift.

247 is far above that.

And yet, at the same time, this mine held a Grade-II Safety Production Standardization certification. Look at its recent penalty record: in June 2025, fined 30,000 RMB because some midnight-shift workers had failed to wear reflective work clothing; in December 2025, fined 20,000 RMB because the emergency-stop pull cord on the man-riding cable car (aka the “monkey car”) in the No. 3 mining district had been pinned down by a cable and rendered inoperative, and because the roof at one gateroad mouth was fractured and left without reinforcing support.

Twice in five months it exposed hard hazards of the “safety device disabled / roof unsupported” variety, and yet it kept its “Grade-II” firmly in place the whole time. The fines are trivial for a mine rated at 1.2 million tons a year, and that “qualified” sign plainly neither reflected its true safety level nor held back the disaster. The certification of compliance and the reality underground had long since become two different stories.

Why There Were “Ghost Miners”

Here the real question emerges. If this was a flagged high-gas danger mine, why would the operators dare to risk a mass-casualty event, opening extra working faces in violation of the rules, and stuffing in over a hundred “invisible” miners?

I put this question to several veteran coal professionals who, citing privacy concerns, asked not to be named. Their explanations converged, almost unanimously, on the same three points.

First, the real capacity may be far below the paper figure. In the judgment of one mining engineer with more than twenty years in the industry, a high-gas mine — because every pass of the shearer forces a shutdown to wait for gas drainage — can in practice produce, steadily and safely, well below its approved 1.2 million tons. Roughly estimated on a compliant “two mining shifts, one prep shift“ arrangement, the real safe annual capacity might be only around 900,000 tons. Which means that from the day this mine received its 1.2-million-ton approval, a gap of several hundred thousand tons was already buried between paper capacity and real capability. (This estimate rests on a series of assumed parameters; it is an industry assessment, not official data.)

Second, supply security is a hard target that must be met. Shanxi’s above-scale raw coal output in 2025 was 1.305 billion tons, roughly 30 percent of the national total; its 2026 goal is to hold steady at around 1.3 billion tons. As the ballast stone of national energy supply security, Shanxi is required to supply thermal coal at long-term-contract prices to 24 provinces, on the order of 400 million tons a year (average), year in and year out. (It should be noted that this electricity-coal long-term contract applies to thermal coal, whereas Liushenyu mainly produces low-sulphur prime coking coal and is not directly bound by this electricity-coal supply scheme. But as one component in Shanxi’s overall supply security machine, it is no more able to escape the “keep producing” pressure. Only that, for this mine, that pressure takes the form of output and profit targets handed down by the county and the group, rather than electricity-coal contracts) That target is sliced and handed down layer by layer: from province to municipality, to the major coal-producing counties, and finally onto each individual mine. Fail to meet it, and the mine director is the first to be held accountable.

Finally, profit is the unspoken driver. Liushenyu’s low-sulphur prime coking coal is a scarce, premium product, with a market price far above that of ordinary thermal coal. Just days before the accident, in the Changzhi area where the mine sits, spot low-sulphur prime coking coal was already running at around 1,500 RMB per ton or more, comparable low-sulphur prime coal in nearby Anze area had climbed to about 1,620 RMB per ton. That means every extra ton this mine dug fetched a four-figure price. To turn that profit into cash, the only option was to dig more and sell.

Put it all together: a mine whose real capacity may be only 900,000 ton, with a mandatory supply security target pressing down on its head and the lure of high coal prices at its side. Compliant production cannot fill the gap, let alone leave a surplus to sell as high-margin market coal. So where does the gap get filled?

The answer is those hundred plus people without positioning device, and those two tunnels that appear on no blueprint.

There is an irony here worth everyone’s memory. Back in 2014, the National Development and Reform Commission and three other ministries issued the Opinions on Strengthening the Management of Underground Production Layout and Controlling Over-Intensity Production, which states very clearly: production plans of excessive intensity must not be handed down to coal mines, and the mine director is the first person responsible for controlling over-intensity production. The rule barring forced over production has been in the books for more than a decade. And yet the pressure to overproduce has never gone away.

Every Node in the Chain Did Nothing Wrong

When people walk down this chain, asking one party after another “who exactly did something wrong,” they find that every node can declare, with a clear conscience, “I did nothing wrong.”

The supply security agencies did nothing wrong. To keep the lights on for ordinary people in the south through the summer, to keep southern factories from halting, the central government planned in advance and handed down supply security targets. That is their job.

The capacity approval agencies, too, can hardly be said to have erred. In the estimation of one expert in coal-coking production management, when the mine applied for its 1.2-million-ton rating, the Production Capacity Assessment Report it submitted would have maxed out the shearer’s advance rate to a “zero disaster, perfect state” assumption and counted the annual working days at the legal ceiling of 330, meaning the whole dossier was fully compliant and every formula checked out. Even if a reviewing expert privately knew the mine could not reach such output, it would be very hard to reject a flawlessly compliant dossier on the grounds of “my experience tells me you can’t do it,” lest they face complaints of “harassing private enterprise” or “shaking them down.” According to another insider, a cautious expert might even downgrade-approve: say the mine applies for 1.5 million tons, and they grant 1.2 million, leaving the operator a little room. (Again, there is no public evidence for this link; it is industry speculation.)

The safety supervision agencies, too, may not have erred. The rules require stationing safety inspectors at the mine, sending them underground daily, and conducting periodic surprise checks. But here is the problem: when the operator has prepared two sets of blueprints and two payrolls, when over a hundred people go down without positioning, what the stationed inspector sees in the system is exactly that compliant 124-person roster and those safety-certified maps.

Most crucially: the people who approve capacity, the people who hand down supply security orders, and the people who supervise on site are not the same group, they are not even in the same department, and their performance metrics differ and do not connect. Each does his duty diligently within his own box, and the possibility of disaster grows out of the seams between those bureaucratic boxes.

In the end, the only one who “did something wrong” can be the mine director, and he will most likely be punished to the maximum. But if you go and ask him, he will probably think only this: bad luck this time, an accident happened.

Let him choose again, and he would still dare.

This is the closed loop. This is why I call it a murder foretold.

What Has Already Happened, and What Is Still to Come

As of this writing, Beijing’s accountability process has begun. Officials have confirmed that the company committed major violations of the law, that its actual controller (Ren Tiezhu, founder of the Tongzhou Group) and other responsible persons have been placed under legal control, and that all four coal mines under the group have been suspended for rectification. Separately, Radio Free Asia, citing a source within the Shanxi government, reports that more than ten people have been detained, that officials suspected of underreporting the underground head count have been taken away, and that the accounts and equity under Ren Tiezhu’s name have been frozen.

And there are some things the Chinese public may never get to learn: whether that gap of several hundred thousand tons of capacity was the direct trigger that forced the violations; how the supply security target was pressed down onto this specific mine; whether the stationed safety inspector genuinely saw nothing, or chose to turn a blind eye.

A campaign-style safety inspection of coal mines across the whole country has since begun, and it instantly drove up the prices of coking coal and the main coal futures contracts on China’s commodity markets: they hit the daily limit-up at the open. Indirect proof that most mines, under the high-intensity post-disaster safety scrutiny, cannot meet their original extraction targets, and that a stretch of coal shortage is on the way.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

A recent news from Argus Metal is worth attention: SPMP (Strategic & Precious Metals Processing) is seeking a buyer or an operator for its idled antimony smelter in Oman, and among the parties it has approached is at least one Chinese company.

After checking London AIM regulatory disclosures, local Omani media, and Shanghai Metals Market (SMM), I found no comparable report in any of them. Yet given that Argus tends to carry high-quality industry-insider information in the strategic minor metals space, we can take this as a genuine asset negotiation that has not gone public and remains private for now.

If we place a report like this against the backdrop of the past two years of critical-minerals policy across major economies, what it reveals matters far more than the possible transaction itself. An asset built to escape dependence on China may now be folded back into a China-centered supply chain, precisely because of the strategic minor-metal scarcity leverage that Beijing itself created.

A Plant Born to “De-Sinicize”

SPMP was established in 2014 in Oman’s Sohar Free Zone, as a joint venture between the Oman Investment Authority (OIA, the sovereign wealth fund, around 40 percent), London AIM-listed Tri-Star Resources (around 40 percent), and Dubai-based DNR Industries, part of the Dutco Group (around 20 percent).

Its real importance lies in positioning rather than capacity. According to Tri-Star, this was the first large-scale antimony roaster built outside China in 30 years (depending on the metric, roughly 5 to 8 times the capacity of United States Antimony Corp’s Montana antimony smelter), and by design, at full capacity it could supply one-fifth of the world’s antimony output. From the outset it targeted a specific customer base: European, U.S., and Japanese buyers who wanted to reduce their reliance on Chinese antimony supply. Its feedstock was long supplied by the Luxembourg-based trader Traxys (which also served as its offtake and trading partner), and its products went to downstream manufacturers seeking to “de-Sinicize.” In short, SPMP’s entire reason for existing was to be the alternative outside China.

Why It Reached the Point of Selling the Plant

The answer lies in two intertwined deadlocks: a shortage of money and a shortage of feedstock.

The money problem is the surface issue. After a 2022 deal with a Russian antimony mine collapsed in the wake of Russia’s war on Ukraine, the plant never returned to commercial operation, running only a handful of technical tests before idling again in early 2024. The closure was meant to be temporary, yet the plant has never restarted. According to Tri-Star Resources, reaching full capacity and sustainable positive cash flow would eventually require up to $160 million in additional financing. That figure, first put forward in 2020, was still being cited repeatedly amid market concerns over the plant’s future at the end of 2024. For a company like Tri-Star, with a market value of just over ten million pounds, this is a hole that public-market fundraising can hardly fill.

The feedstock problem is more hidden and more fatal, and it is exactly where China’s leverage can be understood. SPMP owns no mine of its own and depends entirely on imported antimony concentrate. Global antimony concentrate is itself in severe shortage, and running the plant at full capacity would require 60,000 tons of antimony concentrate a year. So even with a fresh injection of capital, as long as a stable supply of concentrate cannot be secured, restarting the plant remains a long shot.

So Where Does the Leverage Come From

What pushed a “de-Sinicized” plant into distress, and what makes a Chinese buyer look conveniently suited, is China’s simultaneous control over multiple nodes of the antimony supply chain.

The first node is export controls. On September 15, 2024, China’s export controls on antimony and related items formally took effect. (Although following the Xi-Trump summit in Busan in 2025 China’s Ministry of Commerce suspended the related export ban on antimony to the United States, the export controls remain in place, and exporters still need to apply to the Ministry of Commerce for an export license.) With China accounting for around half of global antimony supply, this restriction thoroughly upended international market prices: antimony metal prices once surged from $1,400 per ton to more than $50,000 per ton. Beijing does not need a cutoff. Simply by tightening the pace of licensing, it can send global buyers scrambling for material.

The second node is the ability to mobilize feedstock. As Western buyers rushed to find material outside China and Southeast Asian antimony capacity expanded rapidly as a result, the party actually able to rescue a feedstock-starved smelter turned out to be the Chinese firms with the capacity to mobilize antimony concentrate. This is the real bargaining chip a Chinese buyer brings to this potential deal. What it offers goes beyond a large pool of possibly state-backed capital that can forgo returns for a time, extending to the very thing SPMP lacks most and the market is scarcest in: feedstock.

What emerges is an ironic structure. China’s export controls created a global antimony shortage, and that shortage both raised the strategic value of assets like SPMP and, through the scarcity of feedstock, left it unable to revive on its own. The party able to provide both capital and feedstock happens to be the very one this plant was designed to bypass. The one applying the chokehold has become the most suitable buyer.

From Restricting Exports to Absorbing Capacity

If this deal ultimately goes through, its significance would exceed the simple change of ownership of a single plant. It would mean the only large-scale antimony smelter outside China ending up in Chinese hands. And that touches its most sensitive nerve, because Europe and the United States have long classified antimony as a strategic critical mineral. The tension between an asset’s original “de-Sinicization” purpose and a transaction’s “re-Sinicization” outcome is almost bound to invite the involvement of non-market forces.

This is also why, before it is formally confirmed by any party, this deal will most likely be negotiated slowly and quietly, and may not come together at all.

But what it reveals is already clear enough. In the past, China’s leverage over critical minerals took the form of “I can decline to sell to you.” In a case like SPMP, that leverage is trying to evolve into another form: “when you are trapped by the shortage I created, I can also turn around and buy you out.” The story of this supply chain has grown more complicated.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

This year’s AI-driven optical communications boom on Nasdaq is pushing the once-obscure material indium phosphide (InP), along with its upstream metal indium, into the spotlight. As data centers’ demand for high-speed optical interconnects rises rapidly, the importance of InP is becoming directly tied to the pace of next-generation AI infrastructure buildout. Yet, as with many other critical minerals, the strings in this metal supply chain remain under Beijing’s control. Rising U.S. demand, tightening Chinese export licensing, and overseas capacity expansion by industry leaders together suggest that InP is becoming another real constraint in U.S.-China AI competition. Its upstream metal, indium, now sits at the intersection of export controls shaped by geopolitical rivalry and industrial upgrading driven by great-power competition.

Where China’s Leverage Comes From

There is no doubt that upstream indium metal forms the foundation of InP, and China occupies a globally dominant position in both indium supply and the key processing stages upstream. The U.S. Geological Survey’s 2026 Mineral Commodity Summaries notes that China is the world’s largest producer of indium, accounting for roughly 70 percent of global output. According to publicly available information, Chinese companies have continued to advance high-purity indium refining, with leading companies even achieving technical breakthroughs in producing 6N-and-above high-purity indium ingots. At the same time, they have also pursued sustained development in polycrystalline indium phosphide preparation, single-crystal growth, and the industrialization of wafers and substrates. In other words, China not only controls the supply of indium, but also possesses a degree of technological advantage in key stages such as indium refining and the production of high-value compounds including indium phosphide. Building on this dual advantage, in February 2025 Beijing also placed indium phosphide, trimethylindium, triethylindium, and related technical materials under export controls, thereby converting China’s resource and processing capabilities into institutionalized licensing power (like they did to the rare earth).

Why InP is important

The importance of InP lies first and foremost in its widespread use in high-speed optical communications components, making it one of the key materials supporting high-speed data transmission within data centers. As AI training and inference continue to raise demands for computing power, bandwidth, and energy efficiency, the need for faster optical interconnects is also increasing, pushing InP into a more critical role. In that sense, InP matters not because of its trade volume, but because it is becoming more deeply embedded in the core infrastructure of the next generation of digital systems—and, by extension, in one of the central battlegrounds of U.S.-China AI competition.

Restricting Outflows, Expanding Domestic Uptake

We need to understand that China is not Russia: it will not rely solely on export restrictions on resources as a source of power. It is also working in parallel to encourage the domestic industrial chain to absorb InP-related technologies. In March this year, Shenzhen released its Action Plan for Accelerating the High-Quality Development of the Artificial Intelligence Server Industrial Chain (2026–2028), which explicitly identifies optical modules as one of the key areas in the AI server industrial chain. The plan calls for pushing optical modules from 800G toward the 1.6T/3.2T generation, supporting the launch of mass-production projects for 800G-and-above optical modules, and promoting “breakthroughs and scaled application of core technologies such as high-end thin-film lithium niobate and high-end InP.” The significance of this document lies not only in the fact that it is an industrial policy plan issued by Shenzhen, a major hub of China’s semiconductor industries, but also in the way it deliberately avoids supporting a single key material in isolation. Instead, it places InP within the broader industrial chain of AI servers, data-center optical interconnects, and high-speed optical modules. The policy aims to create interaction between upstream materials breakthroughs and downstream application demand: progress in new upstream materials supports optical module upgrades, while demand from high-speed optical modules and AI servers pulls forward R&D iteration in the materials segment.

Another reason for this approach is that China’s 2025 export restrictions on InP require exporters to apply for export licenses through provincial commerce departments. After an initial review at the provincial level, applications are then submitted to the Ministry of Commerce for a second round of review; only after both stages are approved can an exporter obtain a “dual-use item” export license. If domestic demand exists for the same type of restricted dual-use item, provincial commerce departments are highly likely, during the first round of review, to invoke vague provisions in the dual-use export licensing rules by asking exporters to provide “other documents” in addition to the specified materials. As seen in past rare earth export-licensing cases, such “other documents” often involve end-user’s commercial secrets.

In practice, this can increase uncertainty in the export application process, lengthen approval timelines, and even create de facto export bans for certain transactions. In other words, the clearer China’s domestic demand becomes, the more easily the export licensing system can shift from a mere compliance-review tool into a policy lever for prioritizing the domestic industrial chain. China does not need to impose a formal export ban, which would generate excessive diplomatic pressure abroad. Instead, within the rules it has itself created, it can use approval timing, vague supplementary-document requirements, and difficult-to-satisfy end-user reviews to raise the compliance costs, time costs, and opportunity costs for foreign firms seeking access to one particular key materials.

Downstream corporate activity is also actively echoing this industrial policy. Dongshan Precision’s newly released 2025 annual report shows that the company is relying on Source Photonics to advance its high-speed optical chip and optical module businesses. Its self-developed 200G PAM4 EML chip has entered mass production and will support 1.6T optical modules; at the same time, the company’s 1.6T product portfolio covers multiple routes, including EML, silicon photonics, and InP PIC. This Dongshan Precision case does not mean that China has completed full-chain domestic substitution in optical modules. But it does point to a possible trend: Chinese optical module companies are moving high-speed EML, 1.6T optical modules, and InP PIC toward scaled productization, which will likely expand domestic demand for homegrown InP components. This directly echoes the argument made above.

Why InP Has Not Drawn Washington’s Attention

One important reason Washington appears not to have paid as much attention to InP as it has to rare earths or copper, in my view, is that the leverage created by controlling InP exports is difficult to see directly through open trade data. External researchers and policy analysts often rely on customs data to assess the trade volume, destinations, and potential impact of a given Chinese export control policy. In the case of InP, however, publicly available Chinese customs data show only the broader category of “phosphides,” of which indium phosphide is just one part. China’s official tariff commentary indicates that the “phosphides” category also includes copper phosphide, calcium phosphide, zinc phosphide, tin phosphide, phosphine, and phosphides of arsenic, boron, silicon, barium, and cadmium. As a result, even when researchers can see “phosphides” export data (Even when using a VPN service, China’s customs data query portal sometimes still blocks overseas access requests), it is difficult to determine how much of that trade actually corresponds to high-end InP, and therefore difficult to directly quantify China’s supply-chain leverage over this specific material.

Figure 1. China’s Phosphides Export Data (Data Source: General Administration of Customs of PRC)

(However, there may be one way to infer possible InP export destinations: dividing export value by export volume to estimate the unit price of exported phosphides per kilogram, since InP is generally more expensive. Based on this chart, a substantial amount of InP in 2025 may have been exported to Canada, which is notable because Canada is a key supply-chain node for Coherent.)

This makes external assessment more dependent on company disclosures and industry-insider information, both of which are highly uneven. AXT is one of the few U.S. companies to have publicly acknowledged being affected by China’s InP export licensing regime: the slower-than-expected issuance of export licenses had affected shipments and weighed on revenue performance. While Coherent has not stated in its public disclosures, in the same explicit way that AXT has, that its own InP capacity or revenue has been directly affected by the Chinese export-license approvals. The risks around InP are more likely to appear through company-specific cases, internal supply-chain information, and asymmetric disclosure. This also makes InP less likely than critical minerals that can be tracked directly through customs data or price movements to enter Washington’s public policy agenda.

The 6-inch Bottleneck

Since open trade data do not directly reveal the too many details of China-produced InP export, it is useful to move beyond an export-based analytical framework. Instead, as we would when assessing other emerging technologies, we can examine whether China controls the higher-end and difficult-to-replace downstream manufacturing parts in the broader industrial chain of this chemical compound. In the InP-related industry chain, 6-inch high-quality wafers and substrates represent such a critical threshold: they directly determine whether optical chips and optical modules can obtain stable support from large-diameter materials. According to the public statement by Coherent, a leading firm in this field, global front-runners already view 6-inch InP as a platform capability for next-generation data-center optical architectures. Coherent itself has established 6-inch InP wafer-fabrication capability in Texas and Järfälla, Sweden, and is expanding capacity in Switzerland. By contrast, public disclosures by leading Chinese firms focus more on the transition from mature 2–4-inch products toward the industrialization of 6-inch high-quality InP single-crystal wafers and substrates.

For example, Yunnan Germanium and its controlled subsidiary, Yunnan Xinyao, have developed a degree of capacity advantage in 2–4-inch InP single-crystal wafers and substrates, but their annual reports still describe 6-inch products largely in terms of key technical breakthroughs, capacity expansion, and industrialization efforts. In August 2025, JFS Laboratory disclosed that Yunnan Xinyao had achieved a breakthrough in the key industrialization technology for 6-inch high-quality InP single-crystal wafers and described mass production as “imminent”—though mass production has still not begun. In April this year, Yunnan Germanium further announced a high-quality InP single-crystal wafer construction project, whose planned capacity includes 6,000 6-inch wafers, although its production yield remains unknown to outside observers.

As emphasized above, mastering 6-inch InP wafer and substrate technology would allow China to translate upstream materials capability into stable support for its optical-module industry. Compared with U.S. optical-module leaders, Chinese firms are still working to cross key industrialization thresholds, including large-diameter single-crystal growth, defect control, uniformity, and yield. China’s industrial policy, especially local implementation policies that translate central-level strategic guidance into concrete support, will likely focus in the coming years on helping domestic firms overcome these bottlenecks.

Conclusion

The real significance of studying InP today lies in how China uses it to connect resource control, industrial upgrading, and AI competition. China’s influence in this supply chain stems from its simultaneous control over upstream indium supply, export licensing for InP-related items, and the domestic capacity to absorb these materials into high-speed optical modules and optical chips. Because InP is a small-volume, high-value material embedded in a highly specialized supply chain, Beijing’s policy leverage is expressed through industrial control over key nodes. Although China still needs to overcome manufacturing bottlenecks in areas such as high-end 6-inch InP wafers and substrates, its policy direction is already very clear: to combine upstream materials advantages, export licensing, and downstream application demand to turn InP into a strategic advantage in the competition over AI infrastructure.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

In the wake of last week’s “Two Sessions” (NPC & CPPCC) in Beijing, international observers remained fixated on frontline tech competition—embodied intelligence, AI compute, and UAVs. Domestically, the Chinese public’s gaze was largely fixed on issues of wealth distribution.

I, however, have kept my focus on the critical minerals sector. Specifically, I’ve been tracking the “People’s Representatives” from the minerals industry to see what agendas they are pushing and what policy shifts they are attempting to engineer.

Li Wei: From “Resource Advantage” to “Technical Hegemony”

Li Wei (李卫)—a titan in the field as a member of the CPPCC Standing Committee, CAE Academician, and Chairman of the China Rare Earth Industry Association—noted in an interview wit6h China Metallurgical News that the industry is at a pivot point: shifting from “resource advantage” to “technology advantage.”

Li argued that as emerging sectors like EVs, wind power, humanoid robotics, and the low-altitude economy accelerate, the strategic value of rare earths is decoupling from mere tonnage. China can no longer lean on raw resource dominance; it must achieve a “value leap” through innovation. He distilled two critical signals from the Government Work Report:

1. Technology self-reliance: Prioritizing “New Quality Productive Forces” (新质生产力) to break through core technological bottlenecks in high-end permanent magnets and functional materials.

   and

2. Resource security in great power competition: Balancing green transition with supply chain security.

Li’s conclusion was blunt: while China leads in reserves, smelting, and scale, it still lags in high-end applications and recycling systems. To mitigate the risks of price volatility, the industry must transition from “selling resources” to “selling technologies and solutions.”

Yan Chunhua: The “National Champion” Framework

Meanwhile, Yan Chunhua (严春华)—NPC Deputy, CAS Academician, and Peking University Professor—utilized the Gansu Delegation’s Open Day and the China News Service (CNS) short video program “Two Sessions in 30 Seconds” to emphasize tech innovation for resource-heavy regions.

Yan pointed out that Gansu remains a pivotal province for China’s non-ferrous metals and rare earth resources. He noted that over the past five decades, research teams from Peking University and Lanzhou University have maintained a consistent partnership, systematically bridging the gap from raw resource extraction to high-performance materials, and ultimately to device-level applications. This practical evolution demonstrates that while resource endowment serves as a baseline, true strategic advantage must be engineered through sustained technological innovation.

He proposed a triple-pronged strategy to maintain China's momentum:

1. Centering innovation in national strategy via the new “Whole-of-Nation System” (新型举国体制).

2. Promoting cross-regional synergy, specifically the “National R&D — Western Industrialization” (全国研发-西部转化) model.

3. Fostering interdisciplinary integration, merging geology, metallurgy, and material science.

A Short Analysis: Three Dimensions of the New Rare Earth Paradigm

If we synthesize the proposals of Li and Yan, we see a clear blueprint for the next phase of China’s mineral strategy:

I. Strategic Pivot: From “Resource Endowment” to “Technological & Solution-Based Dominance”

Li Wei’s core message is clear: China’s rare earth industry can no longer survive on the low-end export of ores or primary products; it must achieve a “value-leap” through innovation. By explicitly calling for a transition from “selling materials” to “selling solutions,” he specifically targets “choke-point” technologies in high-end permanent magnets and specialized functional materials. This is Li’s signal to Beijing: In this new phase of Great Power competition, China’s massive reserves and smelting capacity are no longer sufficient to guarantee discourse power (话语权). Future policy must tilt downstream. By mastering the “rare earth + device” integration, China aims to neutralize the strategic impact of the U.S. and its allies’ attempts to develop alternative, China-free supply chains.

II. Alignment with “New Quality Productive Forces”

Li identified four explosive growth sectors for rare earth materials: humanoid robotics, the low-altitude economy (eVTOL/UAVs), EVs, and wind power. This necessitates immediate breakthroughs in next-generation permanent magnet technologies characterized by high magnetic energy product, high coercivity, and high thermal stability. In Li’s view, rare earths are evolving from mere industrial vitamins into the engine of “New Quality Productive Forces”. The expanding demands for motor power density and lightweighting in robotics and low-altitude aviation will transform high-end magnets from a commodity into a mandatory strategic asset, rather than a mere industrial commodity.

III. Implementing “Cross-Regional & Interdisciplinary” Synergy

Yan Chunhua proposed the “National R&D — Western Industrialization” model, where resource-rich provinces like Gansu and Inner Mongolia take over the commercialization of R&D outputs from the developed coastal east. This is a blueprint for the “New Whole-of-Nation System”: integrating cross-regional capabilities in geology, metallurgy, materials, and chemistry to prevent any rupture in the R&D–raw material–mass production chain. The goal is to fix the structural disconnect between academic R&D (in universities) and industrial production (in remote regions). By geographically restructuring the supply chain, Beijing seeks to transform western resource pits into advanced manufacturing bases, enhancing the resilience of the entire Chinese supply chain.

We have already seen this geographic integration of R&D and manufacturing in Hefei’s nuclear energy sector—a model Xi Jinping calls “Four Chains Integration” (四链融合), which integrates innovation, industry, capital, and talent in long-term strategic technology development (see my article published on China Brief Notes).

Conclusion

If the remarks made by these two CAE academicians are ultimately adopted by Beijing’s decision-makers in some form, we are likely to see a new round of adjustments to China’s rare earth industrial policy. The goal would be to move China’s rare earth sector beyond simply “selling resources” or “selling permanent magnets” and toward creating a genuine technological gap over its competitors (namely, the US and Japan). As the United States, Japan, Australia, and the European Union continue their efforts to build de-Sinicized rare earth supply chains, the marginal value of China’s rare earth card at the international negotiating table is bound to diminish. Beijing will therefore have to upgrade this card in order to preserve its monopolistic position in the global rare earth supply chain.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

In January 2026, China’s critical minerals sector underwent a rare and sweeping realignment of its central state-owned enterprises (SOEs). On January 14, Minmetals Development (五矿发展) unveiled a major restructuring plan: the company intends to divest its entire resource trading and supply chain service portfolio in exchange for 100% equity in Minmetals Mining (五矿矿业) and Shandong Luzhong Mining (鲁中矿业). This move places over 4 billion tons of iron ore resources under its direct control.

Simultaneously, China Nonferrous Metal Mining Group (中国有色) secured million-ton copper and zinc projects in Kazakhstan and Peru through overseas acquisitions, while China Rare Earth Group (中国稀土) finalized its actual control over Guangsheng Nonferrous (广晟有色). The latter marks the official endgame for the consolidation of medium and heavy rare earths in Southern China.

From Middleman to Resource Pillar

This series of seemingly isolated event signals the conclusion of a functional tug-of-war between major mineral SOEs that has persisted since the founding of the China Mineral Resources Group (中国矿产资源集团, CMRG).

For readers of this column, the logic of this shift is familiar. In previous analyses regarding the struggle for iron ore procurement, I discussed the early frictions between CMRG—an emerging platform—and legacy giants like Minmetals and Baowu (宝武钢) over purchasing and pricing authority. With CMRG’s international trading arm now operational and based in the Xiongan New Area, Beijing’s will for unified procurement of strategic resources has been codified.

Minmetals Development’s decision to shed a trading business with over 60 billion RMB in annual revenue is not a simple pivot. Rather, against the backdrop of centralized state procurement, it is a proactive exit from the middleman role, a role that has lost its valuation premium. By seizing core upstream mining, Minmetals is reconstructing itself from a trade conduit into a resource provider. This transformation aims to solve the structural dilemma for Beijing of being a “resource giant but a pricing weakling” by boosting self-sufficiency and SOEs synergy.

Moving Beyond the 0.19% Margin

The most striking aspect of this reshuffle is Minmetals Development divesting a trading business valued at over 60 billion RMB. However, the financial motivation is straightforward.

According to 2024 annual report data, despite a massive revenue of 672.36 billion RMB, the company’s net profit attributable to shareholders was a meager 126 million RMB—a net margin of just 0.19%. Once non-recurring gains and losses are deducted, the core business was in the red. This “high volume, thin margin, high risk” profile is the current death knell for traditional bulk commodity trading. As market transparency grows and digital platforms proliferate, the space for profit based purely on price arbitrage has been crushed.

In contrast, Chinese trading firms with upstream resource backing, such as CITIC Metal (中信金属), maintain net margins around 1.72%—roughly nine times that of Minmetals. The core of this quality gap is the resource anchor required to withstand raw material price volatility. Under the State-owned Assets Supervision and Administration Commission of the State Council’s (国务院国有资产监督管理委员会, SASAC) “One Profit, Five Ratios” (一利五率) evaluation framework [1], Minmetals is shedding a bloated but bloodless trading flow in favor of high-quality mining assets with projected gross margins of 40%.

This is more than a bid to repair secondary market valuations (already evident in the stock price surge following the announcement); it is a leap from being a “tool-wbased” SOE to a “functional” strategic pillar. This “disintermediation” is the necessary groundwork for seizing international pricing power. Pricing power is not just a negotiation at a table; it is a contest of supply resilience. By owning 4 billion tons of ore, Minmetals ceases to be a passive victim of global fluctuations and instead becomes a decisive card at CMRG’s negotiating table with foreign giants like BHG.

The Triology of 2026: Policy, Law, and Market

This surge of restructuring in early 2026 is driven by three converging forces:

• Policy: The “Three Concentrations” (三个集中). SASAC now mandates that state capital concentrate on strategic security, industrial leadership, and national livelihood. Under this directive, revenue and profit are no longer the primary metrics. The new yardstick is the ability to guarantee critical mineral security and maintain a closed-loop supply chain under extreme conditions.

• Law: Judicial “Lightning Speed.” Many wonder how such complex restructurings could be executed so efficiently. The key lies in the Interpretation of Several Issues Concerning the Application of Law in the Trial of Mineral Rights Dispute Cases (Legal Interpretation [2026] No. 2) (关于审理矿业权纠纷案件适用法律若干问题的解释（法释〔2026〕2号）), which came into effect on February 1, 2026. As a judicial interpretation accompanying the new Mineral Resources Law (矿产资源法), it clarifies the principle that mining rights transfer contracts are “effective upon formation” (成立即生效), and their validity is no longer contingent upon administrative approval for the transfer itself. This has streamlined the administrative process for mining rights transfers, dismantling the regulatory barriers that have hindered the integration of SOE assets for years and clearing the path for this massive resource consolidation.

• Market: Precise Timing at the Cycle Bottom. In early 2026, iron ore prices hit a four-year low. Injecting assets now minimizes valuation costs and financial pressure. As the steel industry began its recovery in late 2025, these SOEs are positioned to capture the rebound, achieving a “Davis Double” in asset value.

Conclusion: Security in Irreplaceability

For Minmetals Development, retreating from trade is not a failure, but a strategic redeployment after defining its power boundaries with CMRG. This creates a complementary defense system: CMRG coordinates international pricing through unified procurement and monopsony market, while the restructured Minmetals provides the physical supply floor through domestic resource development.

As the United States launches Project Vault to build its own strategic mineral reserves, the logic of the US-China competition on resources is shifting. When Washington uses state power to build stockpiles and hedge against price shocks, the old influence built on massive trade transshipments rapidly evaporates. For Chinese mining giants, true security will no longer come from massive top-line revenue, but from the unmistakable depth of their control over the resources themselves.

Note

[1] Starting in 2023, SASAC officially transitioned the performance evaluation system for central SOEs to the “One Profit, Five Ratios” framework. This includes Total Profit (the “One Profit”), alongside five key ratios: Return on Equity (ROE), R&D Investment Intensity, Overall Labor Productivity, Operating Cash Flow Ratio, and Asset-Liability Ratio.

This shift in evaluation mandates that central SOEs pivot from revenue expansion toward quality-driven growth. For Minmetals Development, its legacy resource trading business faced significant structural disadvantages under this new system:

• Extremely Low ROE: The thin margins inherent in the trading business made it difficult to generate high returns on capital.

• Poor Operating Cash Flow Ratio: Bulk trading typically involves substantial prepayments and accounts receivable. While the top-line revenue remains massive, the “quality” of that profit—the actual cash flow generated—is highly volatile.

• Constrained Labor Productivity: The large personnel scale required for trading operations was disproportionate to the meager net gains produced.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

Recently, a wave of overseas acquisitions by Chinese mining giants has captured significant attention.

Jiangxi Copper Acquires SolGold

On December 12, Jiangxi Copper (JCC) announced a plan to acquire all outstanding shares of SolGold at 28 pence per share (totaling 8 billion RMB, or approximately $1.14 billion). Although two previous offers (at 26 pence) were rejected, this third increased bid finally secured support from the board as well as key shareholders like BHP and Newmont (who collectively hold about 40.7%).

At the heart of JCC’s determination lies the Cascabel copper-gold project in Ecuador (in which SolGold holds a 100% equity). The project boasts staggering resources of over 12 million tons of copper and 30 million ounces of gold, with a high copper grade. This move will propel JCC from a copper-focused giant into a world-class “dual-core” copper and gold player.

CMOC Acquires Four Brazilian Gold Mines

Just three days after JCC’s announcement, CMOC officially declared that it had signed an agreement with Canadian-listed Equinox Gold Corp. to acquire three assets in Brazil, comprising four producing gold mines, for a consideration of $1.015 billion (approximately 7.2 billion RMB). This marks a decisive step in CMOC’s “copper-gold dual-core” strategic layout, expanding the footprint of this global diversified resource giant.

The targets of this transaction are the Aurizona and RDM mines, as well as the Bahia mining complex (which includes the Fazenda and Santa Luz mines), all with 100% equity. These four mines are mature assets with stable production, collectively holding approximately 156 tons (5.013 million ounces) of gold resources and about 120 tons (3.873 million ounces) of reserves. Production in 2024 has already reached 247,300 ounces. According to the official announcement, the acquisition is expected to immediately add approximately 8 tons (about 257,000 ounces) of annual gold production to CMOC upon closing. This is another major victory for CMOC in the gold sector, following its acquisition of the Cangrejos Gold Mine in Ecuador this past June.

A Comparison

While both companies are engaging in major acquisitions, the tactical logic behind CMOC and JCC differs significantly：

Why Copper and Gold?

We already understand the critical importance of copper against the backdrop of today’s AI race from numerous analyses, so we will not elaborate further here.

So, why gold mines?

Chinese enterprises, especially mining giants with substantial overseas assets, urgently need a “non-sovereign credit asset” to hedge against potential sanctions from the United States, given the risks of future geopolitical conflict. Gold is a hard currency that does not rely on any national credit.

In 2025, China’s central bank has continued to increase its gold holdings. While the central bank buys, mining giants with strong state-owned backgrounds (or close ties) acquiring overseas gold mines are effectively controlling more physical gold resources for the state at the corporate level. This is an open strategy of “storing gold within enterprises.”

There is, of course, a corporate financial logic:

Gold prices are often positively correlated with economic recession and turmoil. Introducing gold mining can perfectly hedge against the cyclical fluctuations of industrial metals (copper/cobalt), making financial reports more stable.

Furthermore, gold mines can serve as cash cows. For instance, the Brazilian gold mines acquired by CMOC are producing assets, meaning they will generate cash flow immediately upon delivery. Since copper mine development cycles are typically very long, enterprises need cash cows like gold to provide vital funding support for the massive capital expenditure (CAPEX) required for copper projects.

In a nutshell, they are exchanging earned US dollars for underground gold, physical assets that do not rely on US credit. In the past, Chinese mining companies went global for industrialization (buying copper, iron, and cobalt to serve domestic manufacturing). Now, the new narrative has shifted: Chinese mining companies going global are beginning to account for financialization (buying gold to serve capital security).

The Story Continues to Unfold...

However, both acquisitions are in Latin America.

With the latest U.S. National Security Strategy (NSS) prominently announcing the return of the Monroe Doctrine—and putting forward a more aggressive “Trump Corollary”—Washington has explicitly defined the Western Hemisphere as a core zone of interest, signaling extreme vigilance against economic penetration by foreign powers in the region.

Consequently, whether these acquisitions of prime Latin American mining assets by Chinese enterprises will trigger a new round of geopolitical friction between the U.S. and China, and whether these deals will subsequently encounter resistance from non-market forces, remains an unknown.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

Back in early October, the sudden suspension of BHP iron ore shipments by the China Mineral Resources Group (CMRG) drew intense attention from Australia. At the time, I wrote an article analyzing several prevailing interpretations of the incident in China. After pointing out the flaws in each of the popular explanations, I suggested a possible hidden cause, inspired by an insider from China’s mining sector who described CMRG’s move as “a damned stunt” (他妈的骚操作).

Based on this, I argued that the confusion—and even cursing—from other Chinese state-owned mining enterprises implied that the incident was likely a chaotic, potentially unauthorized overreach by a newly established SOE trying to assert its authority over established giants like Baowu and Minmetals.

Unexpectedly, just two months later, the fog surrounding the event has cleared completely. On December 5, CMRG officially registered a wholly-owned subsidiary: China Mineral Resources Group International Iron Ore Trading Co., Ltd (中国矿产资源集团国际铁矿石贸易有限公司).

Crucially, this new entity is registered not in a traditional trade hub like Shanghai or Shenzhen, but in the Xiong’an New Area (雄安新区), the special zone designated by Xi Jinping as a “millennium plan (千年大计)” (though it remains largely an uninhabited “ghost town” today). This development provides a new footnote to the turmoil of October: it confirms the hypothesis from my previous article. The chaos witnessed then was indeed a power grab initiated by a new SOE against traditional state miners and steelmakers—one backed by high-level leadership.

From “Coordinator” to “Operator”: The End of Ambiguity

As my previous article suggested, if the October incident is understood as CMRG challenging the traditional order of China’s overseas iron ore procurement, then the core conflict lay in the CMRG’s ambiguous role. On the surface, it was merely a platform for coordinating negotiations with overseas mining companies; in practice, however, it intervened in specific procurement operations. This angered traditional steelmakers with long-established and stable supply chains, who viewed such intervention as sudden and destructive administrative interference.

The establishment of the new subsidiary resolves this identity crisis through institutionalization. According to public corporate registration data, the new company’s business scope explicitly includes “domestic trade agency” and “international cargo transport agency.” This detail marks a fundamental shift: CMRG is no longer just a “referee” at the negotiating table; it has officially become a “player” competing on the field.

By establishing a dedicated trading entity, CMRG has secured the legal and operational qualifications to sign contracts, book vessels, and manage logistics directly. Retrospectively, the so-called “stunt” of rejecting cargo in October looks more like a stress test, or a show of force, in preparation for this entity’s full operational takeover. This means that the era of major steelmakers reaching their own individual deals with Australian firms is rapidly coming to an end.

The Political Metaphor of Xiong’an

The decision to register this core subsidiary in Xiong’an carries immense political significance. In the ecosystem of Chinese SOEs, the location of a headquarters is often a barometer of political support.

Had this subsidiary been established in the Shanghai Free Trade Zone, I might have viewed it as a market-oriented trading enterprise. But CMRG’s choice to plant its flag in Xiong’an, an ambitious project personally planned and promoted by the supreme leader, despite its seeming impossibility, is undoubtedly sending a clear political signal to its domestic rivals. It effectively elevates the centralization of iron ore procurement from a question of distributing commercial interests to one of expressing political loyalty.

For deeply rooted legacy SOEs like Minmetals or Ansteel, resisting a competitor based in Shanghai is a matter of business strategy; but resisting a directive originating from Xiong’an involves questions of “political stance”. This strategic positioning indicates that the bureaucratic power struggle mentioned in my previous article has reached a definitive conclusion: CMRG has won thoroughly.

“Resilience”

In its press release, CMRG stated that the new company aims to “enhance the resilience of the industrial supply chain.” In the context of current geopolitical tensions, “resilience” in Beijing’s lexicon is increasingly becoming a euphemism for “state control.”

The October incident proved that to establish long-term bargaining leverage and control, Beijing is willing to tolerate short-term market shocks and even reputational damage. With the Xiong’an subsidiary now operational, international miners like BHP and Rio Tinto will face a solidified “monopsony,” while Chinese steelmakers witness the centralized control of their procurement channels. The farce that began in the autumn was not a mistake, but the birth pangs between the collapse of the old order and the birth of a new centralized system.

More of my works, please check China Brief and China Brief Notes on the website of Jamestown Foundation

On the Beijing’s morning of November 7, People’s Republic of China’s (PRC) Ministry of Commerce (MOFCOM), together with the General Administration of Customs, issued Announcement No. 70, announcing that from November 10, 2025 to November 10, 2026, the previously promulgated MOFCOM Announcements No. 55, 56, 57, 58, 61, and 62 would be suspended. In other words, the series of export control measures announced on October 9, which are the strictest restrictions Beijing has ever imposed on rare earths and critical metals have been temporarily put on hold following certain positive outcomes from the Trump–Xi meeting in South Korea.

In addition, two days before the announcement, a spokesperson for the MOFCOM stated at a press conference that, also starting November 10, the PRC would lift the dual-use export ban on the 15 U.S. companies listed in MOFCOM Announcement No. 13 (March 4, 2025), while continuing to suspend the export ban for one year on another 16 U.S. companies included in MOFCOM Announcement No. 21 (April 4, 2025).

Notably, the spokesperson emphasized that this only means exports of dual-use items (such as rare earths) to these 31 companies will be permitted; the companies must still apply for export licenses through provincial-level commerce departments (or sub-provincial bureaus such as those in Qingdao, Xiamen, or Chengdu), and obtain approval from both local and central authorities.

On the same day, the spokesperson also announced adjustments to the Unreliable Entity List (不可靠实体清单, UEL). Similarly, two categories of treatment were applied: for the 11 U.S. companies listed in the UEL Working Mechanism Announcements No. 5 and No. 6 (不可靠实体清单工作机制公告第五号，第六号), related measures were terminated; for the 11 U.S. companies listed in the UEL Working Mechanism Announcement No. 7 (不可靠实体清单工作机制公告第七号), the suspension of measures would be extended for another year.

On November 6, the MOFCOM held another press conference, during which the spokesperson once again emphasized that exports of rare earths require licensing, and that applications meeting regulatory requirements will be approved. The ministry also stated its willingness to “continuously optimize the licensing process and actively implement facilitation measures such as general licenses” (不断优化许可流程，积极适用通用许可等便利化措施).

Following all these above mentioned, on November 9, Beijing announced another round of relaxations. The new notice suspended Clause 2 of MOFCOM Announcement No. 46, which had previously prohibited exports of gallium, germanium, antimony, and superhard materials to the United States and subjected graphite-related dual-use items to heightened end-use and end-user scrutiny. At first glance, this might seem like another major loosening of Beijing’s export control regime. Yet it also raises a critical question: what exactly has Beijing lifted, and what remains in force?

Clause 2 of the Announcement No. 6 had explicitly stated that, “in principle, no export licenses shall be granted for gallium, germanium, antimony, and superhard materials to the United States” (原则上不予许可镓、锗、锑、超硬材料相关两用物项对美国出口), and that graphite exports would face “stricter end-use and end-user examinations” (更严格的最终用户和最终用途审查). Its suspension therefore signals that exports of these items to the United States may once again be approved. However, this does not mean that Beijing has lifted all restrictions on these materials.

Because other regulations introduced earlier remain fully effective. Customs Announcement No. 23, for instance, imposes export controls on a broad range of gallium- and germanium-based metals and compounds, including gallium nitride, gallium oxide, gallium phosphide, gallium arsenide, and zone-refined germanium ingots. That order has neither been suspended nor repealed, meaning the core control framework for these materials remains intact—Beijing has merely loosened certain procedural constraints.

The same logic is true for rare earth elements. While the October 9 restrictions have been temporarily suspended, PRC’s earlier control regime, codified in MOFCOM Announcement No. 18, remains in force. That order continues to subject exports of medium and heavy rare earths, such as samarium, gadolinium, terbium, dysprosium, scandium, and lutetium, as well as alloys containing these elements, to licensing requirements.

In summary, Beijing has implemented the agreements reached during the Kuala Lumpur and Busan negotiations in a gradual and selective manner. It first reaffirmed its bottom line—that exports of dual-use items would continue to require licensing. It then lifted export bans on certain U.S. companies, particularly defense-related firms, thereby loosening the most detailed restrictions at the lower end of its export control regime to demonstrate goodwill. Finally, Beijing suspended the October 9 set of rare-earth and critical-metal control measures, which had been the most stringent to date.

However, this latest easing should not be mistaken for a full-scale policy reversal. Earlier and more fundamental control frameworks, such as those introduced in 2023 for gallium and germanium and in April 2025 for medium and heavy rare earths, remain fully in effect. In essence, Beijing has only relaxed the newest layer of restrictions, while keeping the broader export control architecture intact.

From Beijing’s current approach, it appears that the White House has achieved short-term negotiating gains, but China has retained the ability to re-tighten controls at any time. The selective suspension underscores Beijing’s strategy of “flexibility”: using partial regulatory adjustments to manage diplomatic atmospherics without compromising long-term strategic leverage.

In addition, several other points deserve attention:

1. From the introduction of PRC’s strictest-ever rare earth export control measures on October 9 to the announcement of their suspension on November 7, exports from several major PRC rare earth companies to U.S. firms did not decline—in fact, they increased. For instance, Jinli Permanent Magnet’s (金力永磁) third-quarter revenue from exports to the U.S. reached Renminbi (RMB) 354 million ($ 49.8 million), up 43.92 percent year-on-year. This phenomenon may indicate that the stringent controls were never fully implemented at the enforcement level—either because of the short-term inertia of PRC’s vast bureaucratic system, or because the earlier policy’s deliberately ambiguous wording (“in principle”, “原则上”) left room for flexibility during ongoing U.S.–PRC negotiations, resulting in a “relax where possible” attitude in practice. More likely, it reflects that PRC’s rare earth giants have already achieved an irreplaceable position across the entire supply chain, forcing U.S. firms to pay higher compliance costs. Under such conditions, even the toughest export controls would have limited impact on U.S. demand elasticity for PRC rare earths.

2. Beijing’s bottom line—that rare earth exports must still be licensed—contains a seemingly positive statement: optimizing the licensing process and adopting “general licenses.” The first goal has, to some extent, been realized. Based on my own experience applying for a license, the entire process is fully digitalized (though paper-based submissions remain possible). Local-level commerce bureaus often process applications rapidly: sometimes within two business days, or even half a business day, suggesting that the local approval stage has indeed become more streamlined. However, final approval by MOFCOM can take up to 45 business days, and applicants are frequently asked to provide additional materials not explicitly listed in the Dual-Use Export License Application Guide (两用物项出口许可申请填报指南), such as design details of production lines, which may involve trade secrets. Moreover, all license applications must now be completed in Chinese, adding compliance costs for foreign applicants. In these respects, the process has actually introduced new administrative hurdles rather than eliminated them. As for the “general license” concept, it appears to correspond to Beijing’s earlier pledge to establish a “green channel” (绿色通道) for trusted foreign enterprises in rare earth exports. Yet to date, there has been no public record of any company receiving such preferential treatment from Beijing.

3. Finally, the simultaneous easing of the Entity List and UEL reflects a partially reversible strategic design: some restrictions have been lifted, others just remain suspended. This approach demonstrates Beijing’s willingness to compromise while preserving the option to re-tighten measures in response to Washington’s next actions. In essence, the PRC has developed a “sanction–pause–restore” policy cycle, using list adjustments as instruments of diplomatic signaling rather than evidence of a policy shift. This easing primarily serves as diplomatic atmosphere management, consistent with Beijing’s repeated message: “If you want to talk, the door is open; if you want to fight, we’ll stand ready” (谈，大门打开；打，奉陪到底). At present, the door is open—but the readiness to “fight” remains.

   More importantly, Beijing’s technology control system toward the U.S. has now evolved into a three-tier structure: Entity List, UEL, and national security review. The simultaneous adjustment of the first two indicates that Beijing is now operating its countermeasures in a modular fashion, moving away from “one-size-fits-all” responses and building a flexible, adaptive sanctions system that can adjust in rhythm with the broader diplomatic environment.

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China’s rare earth export control system was gradually built through a series of regulations and legal frameworks, exemplifying a classic “salami-slicing” strategy, i.e., advancing one small step at a time. Although the Western world, led by the United States, took notice, each new restriction appeared limited in scope and never severe enough to disrupt the entire rare earth supply chain, prompting, if any, only a few firm responses. It wasn’t until around October 9, when the PRC Ministry of Commerce released three of the most stringent export control documents in its history, that it became clear Beijing had quietly constructed a comprehensive and tightly woven regulatory regime. This system not only enables China to wield rare earths as an effective bargaining chip in negotiations and competition, but also leverages its monopoly over the entire rare earth value chain to choke off Western high-end manufacturing and defense industries.

First, we must answer a fundamental question: Why has Beijing chosen to adopt this kind of strategy for rare earth export controls? The reason lies in the fact that Western world, particularly the United States, have long been heavily dependent on China’s exports of rare earth elements and permanent magnets for their high-end manufacturing and defense industries. These countries are acutely sensitive to even the slightest disruptions in the rare earth supply chain. Meanwhile, Beijing aims to exert full-spectrum control over this chain to constrain, or even coerce, the Western bloc.

However, a tightly integrated export control regime cannot be built overnight, nor can it be seamlessly enforced across the vast bureaucratic machinery of the PRC. What Beijing needs is a long-term roadmap: one that gradually strengthens this envisioned system through legislation, administrative directives, and even technological innovation.

Crucially, each step must be confined to the realm of “just noticeable action (JNA)”—significant enough to advance the agenda, but subtle enough to avoid provoking collective retaliation from a supply chain-sensitive West. The goal is for the entire system to eventually materialize in full form, catching Washington and its allies off guard. Ideally, they would be left with no choice but to accept a compromise that favors Beijing, allowing it to continue using rare earth leverage to counterbalance the West in pursuit of its broader ambition of “national rejuvenation (伟大复兴).”

The Stage-by-Stage Salami-Slicing of China’s Rare Earth Export Control Regime

Stage 0: The Pre-Regulatory Era

In the early years of China’s reform and opening-up, rare earths were discovered and developed to generate foreign currency (USD). At the time, many Western countries had begun shutting down their own rare earth production due to mounting environmental concerns, whereas China faced neither comparable legal constraints nor public pressure. This opened the door for widespread unlicensed mining. Across the country, countless small-scale mining enterprises sprang up and competed chaotically with one another, resulting in a classic tragedy of the commons: rare earth prices were driven down to unsustainable levels while the accompanying environmental damage grew out of proportion.

It wasn’t until early 1999 that Beijing’s central government began trying to implement an export quota management system for rare earths. However, given the fragmented state of production capacity at the time, enforcement was weak and failed to keep up with the pace of smuggling and other workarounds.

Entering the 21st century—especially after China joined the WTO in 2001—Beijing began to pay closer attention to resource waste and environmental pollution in the rare earth industry. In 2005, the Ministry of Land and Resources introduced China’s first total production control targets for rare earth mining, setting an annual cap on nationwide output. In 2006, the Ministry of Finance raised export tariffs on rare earth products.

A key turning point came in 2010 during the territorial dispute with Japan, when Beijing first experimented with using rare earth embargoes as a tool to force diplomatic concessions. However, at that time, the restrictions were implemented through ad hoc administrative orders instructing customs officials to halt approvals for Japan-bound shipments, rather than via a fully-formed, plug-and-play export control regime. Moreover, organized crime groups colluded with local government officials in southern provinces to ignore the orders and continued smuggling large quantities of rare earths to Japan. Beijing struggled to curb this pattern of corruption-fueled smuggling

Stage 1. “ Crossing the River by Touching the Stones”

In 2011, drawing on lessons from the rare earth embargo against Japan, Beijing moved swiftly to institutionalize a rare earth control regime. In May, the State Council issued a policy document titled “Several Opinions on Promoting the Sustainable and Healthy Development of the Rare Earth Industry (关于促进稀土行业持续健康发展的若干意见),” which established a regulatory framework built around mining quotas + export quotas + tariffs. At the same time, the government launched a crackdown on rare earth smuggling and corruption among officials involved in such activities. That year, China’s rare earth export volumes dropped sharply, and prices for some products surged, prompting the United States, Japan, and the European Union to jointly file a complaint with the WTO, accusing China of manipulating the market.

Three years later, in 2014, the WTO ruled against China. As a result, Beijing was forced to revise its approach. At the end of that year, the Ministry of Commerce and the General Administration of Customs jointly issued a notice abolishing the export quota system, replacing it with an export license application mechanism. The following year, China also announced the removal of export tariffs on rare earths.

These changes marked a subtle shift in regulatory thinking. Directly restricting export volumes in a way that drives up international prices was shown to provoke backlash from the West, as such actions strike at the core of global supply chain stability. Facing its first coordinated countermeasure from Western powers, Beijing began to explore an alternative strategy: first consolidate the industry and upgrade domestic technology to build full-spectrum strategic control, thereby increasing the cost for the West to retaliate. The goal was to gradually push Western countries toward a point where that cost of any countermeasure became prohibitively high.

Stage 2. Initial Consolidation of Production Capacity

Beijing might recognize that the fragmented and disorderly rare earth production capacity within China was the first major obstacle to establishing a robust export control regime. The presence of small-scale, unregulated producers made smuggling difficult to contain, a fact that had already limited Beijing’s ability to leverage rare earth controls during the 2010 standoff with Japan. Once Beijing identified a more effective strategy for constructing a rare earth export regulation system, its priority was to consolidate production capacity and firmly control the upstream and midstream segment of the supply chain.

This window for consolidation opened in early 2015, right after China lost the WTO dispute. Industry reports from 2014 revealed that, for the first time since the beginning of Reform and Opening, the rare earth sector had entered an overall loss. This gave the central government both the justification and motivation to step in and reorganize the sector.

In fact, the 2011 State Council document “Several Opinions on Promoting the Sustained and Healthy Development of the Rare Earth Industry” had already proposed creating a rare earth industry dominated by large state-owned enterprises. However, it wasn’t until 2014 that the MIIT’s plan for forming large rare earth groups was formally approved by the State Council. Following that approval, six major groups—Chinalco Rare Earth, China Northern Rare Earth, Xiamen Tungsten, China Minmetals, Guangdong Rare Earth, and China Southern Rare Earth—were officially registered and began absorbing or eliminating small-scale mining and refining operations.

By 2015, 66 of the 67 rare earth mining companies and 77 of the 99 refining and separation companies across the country had been merged into these six state-owned groups. The MIIT and MNR also announced that, going forward, no new mining or refining projects would be approved outside these six groups, effectively halting new capacity expansion beyond their control. By June 2016, the consolidation process was declared complete, with the six groups controlling over 90% of China’s legal rare earth production capacity.

With this, Beijing had achieved an initial consolidation of the fragmented and small-scale production landscape, securing upstream and midstream control of the supply chain and gaining powerful leverage to restrict output and manipulate prices in the global market.

Stage 3. Legal Architecture Formation

After consolidating production capacity and achieving world-leading capabilities in rare earth separation and refining technologies, Beijing effectively secured control over the entire midstream segment of the rare earth supply chain. Combined with its long-established dominance over upstream mining, the only remaining step for Beijing to establish a full-spectrum rare earth control regime was to regulate the downstream — exports. Around the same time, Beijing was also becoming more adept at wielding “legal warfare (法律战)” on the international stage. Thus, the primary feature of this stage was the establishment of a top-level legal framework to pave the way for future detailed export control policies and regulations.

In October 2020, China officially promulgated the Export Control Law (出口管制法), which came into force in December that year. This marked China’s first systematic piece of export control legislation, covering sensitive items related to national security and strategic interests — including dual-use items, military goods, and nuclear materials. While the law did not explicitly mention “rare earths,” it served as a superior legal foundation upon which detailed rules for rare earth export controls could later be built. By omitting a direct reference to rare earths, it also avoided immediately triggering alarm in the West.

A closer reading of the law reveals that it granted the State Council and the Central Military Commission the authority to formulate control lists, and empowered the Ministry of Commerce and the General Administration of Customs to implement licensing regimes, conduct end-use and end-user reviews, and even exercise a degree of extraterritorial jurisdiction. With hindsight, these provisions clearly laid a legal groundwork for the stricter regulation of rare earths and their downstream applications.

Starting from this stage, Beijing did not rush to impose specific restrictions. Instead, it adopted a salami-slicing approach, such as gradually advancing the legal system’s development. This incremental strategy allowed for internal institutional alignment and policy testing within China’s vast administrative apparatus, while minimizing the risk of premature and forceful international backlash. The Export Control Law thus became the “mother law” for a series of more targeted control measures that followed, with a strategic significance far beyond its literal text.

Stage 4. Second Round of Capacity Consolidation

The previous round of consolidation effectively curbed the disorderly mining of rare earths and concentrated capital to achieve multiple breakthroughs in separation and refining technologies, securing a globally leading position. However, from Beijing’s perspective, the monopoly held by the six major rare earth groups over upstream mining and midstream refining was still too fragmented. Especially in the context of surging demand for medium and heavy rare earths from emerging tech industries like electric vehicles, Beijing’s core policy goal in this stage was to further centralize control over southern medium and heavy rare earth resources. By tightening control, Beijing could not only wield these rare earths as a trump card in diplomatic tensions but also use them to boost China’s own high-end manufacturing sectors such as EVs—ultimately advancing Xi Jinping’s vision of “technological self-reliance (科技自主).”

In December 2021, with approval from the State Council, a new central state-owned giant—China Rare Earth Group—was established in Ganzhou, Jiangxi, formed by merging assets from China Minmetals Corporation, Chinalco, and Southern Rare Earth. The previous structure of six major rare earth groups was reduced to four. The following year, China Rare Earth Group acquired 100% ownership of Guangdong Rare Earth and 51% of Xiamen Tungsten, ultimately forming a dual-core industry layout: China Rare Earth Group in the south and Northern Rare Earth in the north. By 2023, these two giants controlled 98% of China’s rare earth mining quotas; by 2024, China Rare Earth Group held a full monopoly on all medium and heavy rare earth mining quotas. The degree of industrial concentration reached an unprecedented level, laying a powerful foundation for the central government to execute unified strategic control over the rare earth sector.

At this stage, rare earths finally became a true bargaining chip for Beijing in its external dealings. What remained was simply to patch in more detailed legal provisions to fully complete the rare earth export control regime. Had the West realized at this point that China had already laid the foundation for a powerful mechanism to intervene in the rare earth supply chain, it might still have had time to respond diplomatically—at least to delay the process and buy more time to build a China-free rare earth supply chain. However, this kind of production consolidation looked too much like the typical behavior of a state-dominated socialist economy tightening control over a strategic sector. The West failed to grasp the real endgame behind Beijing’s restructuring of its rare earth industry.

Stage 5. Legal Refinement
As previously noted, after Beijing enacted the overarching Export Control Law and consolidated the rare earth industry into two dominant state-owned enterprises, it was already very close to completing the construction of a rare earth export control regime. The focus of this stage, therefore, was to continue rolling out new laws, regulations, and enforcement tools in a gradual, salami-slicing manner—tightening control over rare earth exports step by step, while staying below the threshold that would trigger strong backlash from the West.

The first step was the introduction of another top-level legal framework parallel to the Export Control Law: the Regulation of the People’s Republic of China on the Export Control of Dual-Use Items (中华人民共和国两用物项出口管理条例), which was announced with an effective date of December 1, 2024. This regulation formally brought the export control of “dual-use items” into a codified legal framework. It mandates that the State Council, together with other relevant departments, shall draft and publish an annual list of dual-use items in accordance with the Export Control Law. Any items listed must obtain an export license before they can be exported, subject to review and approval by the Ministry of Commerce. Applicants are also required to submit documentation verifying the end user and intended end use of the items.

Notably, the regulation includes provisions for extraterritorial jurisdiction. Article 49 stipulates:

“Where foreign organizations or individuals, outside the territory of the People’s Republic of China, transfer or provide the following goods, technologies, or services to designated countries and regions, or to designated organizations or individuals, the Ministry of Commerce of the State Council may require relevant operators to comply with the applicable provisions of these Regulations:

(1) Dual-use items manufactured abroad that contain, integrate, or are blended with specific dual-use items originating from the People’s Republic of China;

(2) Dual-use items manufactured abroad using specific technologies originating from the People’s Republic of China;

(3) Specific dual-use items originating from the People’s Republic of China.

(境外组织和个人在中华人民共和国境外向特定目的国家和地区、特定组织和个人转移、提供下列货物、技术和服务，国务院商务主管部门可以要求相关经营者参照本条例有关规定执行：

（一）含有、集成或者混有原产于中华人民共和国的特定两用物项在境外制造的两用物项；

（二）使用原产于中华人民共和国的特定技术等两用物项在境外制造的两用物项；

（三）原产于中华人民共和国的特定两用物项。)”

Although the provision merely uses the phrase “may require,” a non-mandatory formulation, in the context of Chinese legal drafting this often serves to reserve lawful discretion for future administrative enforcement. This deliberate ambiguity exemplifies Beijing’s typical “salami-slicing” approach: laying institutional groundwork for more stringent controls without provoking strong external backlash. At the time, the regulation attracted little attention from Western governments or industry observers, as it appeared to be focused primarily on tightening export rules for traditional dual-use items such as nuclear materials and military goods. Precisely because of this, when the Ministry of Commerce announced its sweeping new rules on overseas end-use tracing for rare earth exports on October 9, 2025, many companies and analysts were caught off guard—failing to recognize that the legal basis for this policy trajectory had already been planted a year earlier.

Following this regulation, the Ministry of Commerce issued Announcement No. 46 on December 3 of the same year, titled “Notice on Strengthening Export Controls of Certain Dual-Use Items to the United States (关于加强相关两用物项对美国出口管制的公告).” The announcement was brief but forceful, containing only two provisions:

1. The export of dual-use items to U.S. military end users or for military purposes is prohibited (禁止两用物项对美国军事用户或军事用途出口).

2. In principle, export licenses for dual-use items related to gallium, germanium, antimony, and superhard materials to the United States shall not be approved; graphite-related items are subject to enhanced end-user and end-use scrutiny (原则上不予许可镓、锗、锑、超硬材料相关两用物项对美国出口；对石墨两用物项对美国出口，实施更严格的最终用户和最终用途审查).

At first glance, this notice seemed unrelated to rare earths, especially since rare earths had not yet been included in the dual-use item control list. However, this announcement set an important precedent: it demonstrated Beijing’s willingness and ability to impose additional, item-specific export restrictions on top of the broader legal framework established by the dual-use export regulation. This means that once rare earths are added to the list, Beijing could apply the same restrictive measures.

This practice of first piloting control tools on less politically sensitive commodities before extending the same mechanism to more strategic exports like rare earths is yet another manifestation of Beijing’s salami-slicing strategy.

Beijing did not wait long. In April 2025, the Ministry of Commerce and the General Administration of Customs jointly issued Announcement No. 18 (18号公告), placing several medium and heavy rare earth elements (such as samarium, gadolinium, and terbium) under export control and requiring exporters to apply for licenses in advance. Although this announcement followed the policy trajectory of Order No. 46, its wording was noticeably more restrained—merely mandating a licensing process rather than using stronger language such as “prohibited” or “in principle, not be approved”—a deliberate move to avoid triggering a strong backlash in Western public opinion.

This kind of phrasing exemplifies the “boiling frog” tactic within the broader salami-slicing strategy: telling the world, “for now, we only need you to apply for a license” rather than outright declaring “under certain conditions, we simply won’t sell.” Yet given that Announcement No. 18 was a continuation of Order No. 46, it was only a matter of time before follow-up documents with firmer language would appear.

In hindsight, they did, and in full force, on October 9. On that day, a series of announcements including No. 57, 61, and 62 were released, cementing a comprehensive rare earth export control regime. U.S. President Donald Trump erupted on social media, and many Americans were stunned by what seemed like a sudden escalation in Beijing’s trade posture. What they failed to see was that China had already laid the groundwork, methodically and quietly, well in advance.

Meanwhile, to build a technological support system in addition to institutional design, Beijing upgraded the previously localized rare earth traceability pilot programs into a unified national platform in 2024. According to Chinese industry sources I spoke with, the system tracks and collects data across the full lifecycle of rare earths—from mining to final products (see Table 1). It is also interconnected with the export licensing system, providing data support for the Ministry of Commerce’s dual-use export approval process. In other words, the introduction of this system gave Beijing a concrete enforcement tool for all the regulatory groundwork it had laid, transforming rare earth export control from merely legal and policy-level mechanisms into a technically enforceable regime capable of “tracking, inspecting, and restricting” exports in real time.

The final step in this stage was the update of an older regulation from 2012: the 2012 “Interim Measures for the Administration of Rare Earth Directive Production Plans (稀土指令性生产计划管理暂行办法)” was upgraded in August 2025 to the “Interim Measures for the Administration of Total Volume Control over Rare Earth Mining and Rare Earth Smelting and Separation (稀土冶炼分离总量调控管理暂行办法).” (For a detailed comparison of the old and new regulations and their implications, please refer to my article published in Jamestown Foundation China Brief Notes on September 25.) I won’t repeat the full content of this new regulation here, as I’ve analyzed it elsewhere. Instead, I’ll highlight one key aspect: the regulation mandates the use of digital systems to monitor compliance with production quotas—directly linking to the “mining data” monitoring and traceability outlined in Table 1.

At first glance, this regulation may appear focused solely on limiting domestic production and unrelated to export controls. However, its actual impact goes beyond the legal text. The regulation sets an annual production cap that the MIIT allocates to each rare earth-producing region, with strict enforcement through a connected electronic system to prevent any locality from exceeding its quota. Consequently, provinces with significant downstream demand—such as Shandong, home to advanced medical equipment manufacturing—may deliberately raise compliance hurdles when exporters apply for dual-use export licenses through provincial Department of Commerce. This creates an informal preference for local retention of rare earths, thereby serving as a de facto export restriction mechanism.

Stage 6: October 9, 2025 — The Moment of Impact

Since the Ministry of Commerce’s three announcements, No. 57, 61, and 62, issued on this day are already widely known, I won’t elaborate on their full content here. In short, these three documents marked the formal completion of a rare earth export control regime that is not only highly assertive in nature but also fully equipped with legal authority and technical enforcement infrastructure. The salami has been sliced to the end, and while the West reacted with surprise, it now appears to have few effective tools left to push back or undo what Beijing has already set in motion.

A Five-Ring Closed Control System

Once the salami has been fully sliced, we can see that China’s rare earth export control regime ultimately forms a “five-ring closed” structure: each ring reinforcing and nesting within the others to create a highly centralized, tightly controlled, and legally enforceable rare earth export management mechanism:

• Legal Foundation: Built on the Export Control Law, the Regulation on the Export Control of Dual-Use Items, and the Rare Earth Management Regulation (omitted in this article), this framework establishes rules on export licensing, control list formulation, end-use and end-user reviews, and extraterritorial applicability. It grants regulatory authority to the Ministry of Commerce, the MIIT, the Ministry of Natural Resources, the General Administration of Customs, and even the Ministry of Public Security.

• Industrial Structure: Beginning in 2015 with the consolidation of six state-owned rare earth enterprises, China further reorganized them in 2021 into two dominant groups: “Southern Rare Earths–China Rare Earth Group” and “Northern Rare Earths.” The Interim Measures for the Administration of Total Volume Control over Rare Earth Mining and Rare Earth Smelting and Separation later stipulated that only MIIT-designated companies, i.e., only the two SOE giants may hold legal licenses for mining and smelting, effectively tightening state control and eliminating industrial autonomy in production.

• Production Quota Control: A system of annual rare earth production cap and quotas is issued by central authorities and allocated across regions and enterprises, strictly regulating upstream resource output and preventing unchecked expansion or unplanned exports.

• Flow Supervision: A nationwide rare earth product traceability system tracks the full life cycle from mining, separation, processing, and transportation to export, feeding data into the export approval system. This enables “visibility, traceability, and enforceability” of every gram of rare earths—if Beijing wishes, not a single gram will end up in the hands of downstream users it disapproves of.

• Export Licensing Regime: A comprehensive dual-review mechanism based on end use and end user ensures rare earths do not flow into military-sensitive sectors or countries deemed threats to China’s national security. The licensing process serves as the final gatekeeper for all external exports.

Conclusion

Looking back at China’s institutional construction of its rare earth export control regime, one recurring keyword stands out: strategic patience (战略定力). Though the term has only been frequently emphasized by Xi Jinping in recent years, it existed under a different name in earlier eras, “taoguang yanghui (韬光养晦)” (hide capabilities and bide time), a mantra often repeated by Deng Xiaoping, Jiang Zemin, and Hu Jintao. Beijing never approached the establishment of rare earth controls as a one-off policy ambush, but rather as a gradual, system-engineering project designed to avoid provoking the West before it had built sufficient capacity militarily, politically, and economically. That’s why it opted for a slow, phased approach: the very salami slicing strategy we’ve referred to throughout this article.

China’s political system has undeniably enabled such long-horizon strategic planning. Compared with the United States in recent years, Beijing has demonstrated a stronger ability to design and execute long-term strategic roadmaps with policy consistency and institutional continuity. In the case of rare earths, this patience was reflected in the way each policy move was calibrated to fall just within the threshold of “just noticeable action”—enough to register with the West, but not enough to trigger coordinated pushback. Slice by slice, the strategy advanced until that final moment on October 9, 2025, when the “shoe dropped” and a fully formed rare earth export control regime stood before the world, and the West found itself with no viable way to reverse it easily.

This salami slicing strategy is by no means unique to rare earth policy. We see the same logic playing out across numerous domains: in Taiwan Strait operations, South China Sea dispute, cyber-attacks, cognitive warfare, and even rule-setting within international institutions. However, this Substack is focused specifically on critical minerals. For readers interested in how China employs similar tactics in areas such as grey zone strategies around Taiwan, I invite you to explore related analyses on the Jamestown Foundation’s official website.

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At a sensitive moment when POTUS Donald Trump is about to visit South Korea and may hold his first meeting with Xi Jinping since 2019, China’s Ministry of Commerce on October 9 unexpectedly announced two new rare earth export control measures (Announcement No. 61 and No. 62).

Compared to previous rare earth regulations, these new rules introduce two major changes:

1. First-ever adoption of the FDPR (Foreign Direct Product Rule): Any product that contains Chinese-origin rare earth materials or was produced using Chinese technology—even if manufactured abroad—must now obtain Chinese government approval before it can be exported.

2. Tightened technology export restrictions: Core technologies related to rare earth mining, refining, and magnet manufacturing will now face stricter export license requirements than before.

Common interpretation: A direct blow to U.S. defense and high-tech industries

The language in the announcement is blunt:

“Export applications to overseas military end-users, as well as applications involving importers and end-users listed on the export control entity list and watch list (including subsidiaries or branches with over 50% ownership), will in principle not be approved (对向境外军事用户的出口申请，以及向出口管制管控名单和关注名单所列的进口商和最终用户（包括其控股50%及以上的子公司、分公司等分支机构）的出口申请，原则上不予许可).”

“Export applications for items intended for or potentially used in the following end uses will in principle not be approved:
(1) Design, development, production, or use of weapons of mass destruction and their delivery systems;
(2) Terrorism-related purposes;
(3) Military applications or enhancing military capabilities (用于或者可能用于以下最终用途的出口申请，原则上不予许可：

（一）设计、开发、生产、使用大规模杀伤性武器及其运载工具；

（二）恐怖主义目的；

（三）军事用途或者提升军事潜力).”

Analysts therefore argue that these measures will directly impact U.S. defense and advanced semiconductor supply chains.

Since rare earths are essential inputs for F-35 fighter jets, nuclear submarines, missiles, radar systems, and AI chips, tighter Chinese export licensing could create serious short-term supply chain pressures for the United States.

But perhaps there’s no need to panic

However, this does not mean Beijing is imposing a blanket ban. The key phrase here is: “in principle not approved (原则上不予许可).”

In the Chinese context, this phrasing typically means:

1. “No” is the default position,

2. But “Yes” is possible if certain conditions are met.

This kind of ambiguity is not a drafting oversight—it’s a deliberate design deeply rooted in China’s bureaucratic language. It serves three purposes:

• Preserves bargaining space, leaving room for future bilateral or multilateral negotiations;

• Allows case-by-case flexibility, enabling Beijing to decide approvals at its own discretion. (There are no clear or transparent criteria, meaning that two identical applications might receive opposite outcomes. This discretionary power allows Beijing to reward or punish as it sees fit—a modern extension of the traditional Chinese political wisdom: “When the law is unknowable, power is unfathomable (刑不可知，则威不可测).”)

• Instrumentalizes export licensing, turning it into a political and economic bargaining chip.

In short, this is not a locked door, rather, it’s an invitation to a negotiating table.

What Beijing likely wants is for Washington to “bring something to the table”

This raises the more critical question: What exactly does Beijing want from the West, especially the United States?

These “conditions” are likely linked to China’s framing of U.S.–China relations as “cooperation within competition”, and could include:

• Trade: Ending U.S. high-tech export controls and tariffs;

• Technology: Expanding China’s voice and role in the global semiconductor supply chain;

• Diplomacy: Laying the groundwork ahead of a potential Trump–Xi meeting;

• Finance: Creating leverage for RMB internationalization, RMB stablecoin initiatives, and increased Chinese investment in the U.S..

“In principle not approved” does not equal an export ban/restriction . It is, in essence, Beijing saying: “Come talk to us.”

China also has its “The art of the deal”

This new set of rare earth and technology export control measures does mark a turning point. But the real significance lies not in whether it can immediately choke U.S. supply chains. Rather, it lies in the strategic leverage and flexibility it grants Beijing.

This is “the art of the deal ” of Xi in the political and economic arena . Beijing has deliberately left the door open—it just expects that when the other side (President Trump) comes knocking, he brings a gift

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In the days leading up to China’s National Day, Bloomberg suddenly reported that China Mineral Resources Group Co., Ltd. (中国矿产资源集团有限公司) had instructed domestic buyers to suspend purchases of any BHP seaborne shipments priced in U.S. dollars. The report was later confirmed by the Australian side. Chinese official media did not follow up on this unexpected development, but after the nationalist platform Guancha (观察者网) covered the incident on October 2, some members of the public began to pay attention and engage in discussions. In the following sections, I will examine several prevailing interpretations circulating in China regarding this event, analyze the reasoning behind each of them, and finally offer my own perspective.

Price Dispute

In recent days, the most common explanation for the incident has been a price dispute. In 2022, China established China Mineral Resources Group aiming to centralize the procurement of imported iron ore. Normally, Chinese steel producers had individually negotiated prices with the three major iron ore suppliers—BHP, Rio Tinto, and Vale—either through long-term contracts or by using futures prices plus premiums. After the establishment of this new entity, it began to play a coordinating role in the import process by consolidating demand from major steelmakers and engaging in joint price negotiations with overseas mining companies.

Beijing has long believed that when steel producers acted independently in iron ore negotiations, they were vulnerable to being divided and priced against each other by foreign suppliers, thereby weakening China’s overall bargaining power. The creation of the China Mineral will change this fragmented and unfavorable arrangement. Although individual companies still sign their own import contracts, the group now integrates purchasing data and market information covering roughly 1.2 billion tons of annual imports. As a result, China has gradually gained greater leverage in price negotiations with these mining companies.

However, looking at the data from September 30 alone, the benchmark prices referenced by overseas mining companies—Platts Index and the Singapore Exchange TSI—were both around $103–105 per ton. By contrast, China’s own target price, as indicated by the Beijing Iron Ore Index, was around $100 per ton. Given China’s massive purchasing volume, it is highly likely that Beijing hoped to secure an additional discount on top of the $100 benchmark. Many observers therefore believe that this price gap explains the move: the China Mineral’s action is seen as an attempt to pressure BHP into lowering its prices further, thereby creating more profit margin for Chinese steel producers.

This explanation is partly correct, and several mainstream outlets citing unverified sources have repeatedly emphasized it as the main explanation. However, it overlooks an important fact: the China Mineral’s primary role is to consolidate import information and coordinate price negotiations on behalf of steelmakers—it does not replace the companies themselves in signing contracts. As such, it cannot unilaterally decide to reject iron ore shipments from Australia unless such a move is backed by higher authorities.

Furthermore, the gap between the Beijing Iron Ore Index’s $100 per ton and the $104–105 per ton indicated by the Platts Index and Singapore TSI is relatively small and falls within a normal fluctuation range. Beijing has little reason to disrupt such a massive supply chain over a price difference of just around four dollars per ton.

Promoting RMB Settlement to Offset Losses from Dollar Payments

Another widely circulated explanation in China is that Beijing’s move aims to promote the use of the Renminbi in commodity trade as a proactive measure to counter U.S. dollar dominance. In 2024, the Renminbi depreciated by 2.8 percent against the dollar, which meant that China’s steel industry ended up paying over 10 billion yuan more for iron ore imports. Most steel companies still rely on bank financing to pay for shipments priced in U.S. dollars, and the U.S. Federal Reserve’s high interest rates have further increased these financing costs, squeezing profit margins across the industry.

Moreover, transactions conducted through the SWIFT system expose Chinese companies to potential sanctions risk. Given that many in China believe a military confrontation with the United States over the Taiwan Strait is very possible in the future, insulating a critical sector like steel from such vulnerabilities is seen as a key strategic consideration.

I must acknowledge that Beijing does indeed seek to advance the internationalization of the Renminbi and, for security reasons, is committed to promoting RMB settlement in global trade as a way to challenge what it views as “U.S. financial hegemony”. It is also true that the heavy reliance on U.S. dollar settlement for iron ore imports makes Beijing feel vulnerable and forced to accept global rules at the expense of its own strategic interests. However, claiming that the recent move against BHP was intended to promote RMB settlement veers too far into a conspiracy theory.

There are several reasons for this. First, from the development of the Belt and Road RMB clearing network to the establishment of the Cross-Border Interbank Payment System (跨境人民币支付系统, CIPS) and the multilateral mBridge central bank digital currency project, Beijing’s approach to RMB internationalization has been gradual rather than abrupt. Its trade arrangements with Gulf countries (in energy) and Brazil (in soybeans) also demonstrate that RMB settlement remains limited in scale and scope, functioning only as a pilot program. Without new central policy directives, an expanded currency swap agreement with Australia, or a mature offshore RMB liquidity pool and cross-bank clearing network, it would be unrealistic to expect a sudden shift toward RMB settlement for all BHP iron ore.

Second, as an emerging power that sees itself as a challenger to the existing international order, Beijing may have problematic motives, but its actions are no doubt cautious and strategic. A sudden, unilateral decision to reject iron ore shipments to force RMB internationalization would only undermine confidence in Beijing’s policy stability, raising the risk premium associated with the Renminbi and portraying it as an unstable currency. This is clearly not the outcome Beijing seeks for its internationalization agenda.

China’s Confidence: Iron Ore Alternatives Beyond Australia

Many observers have also pointed out that China now has multiple alternatives to Australian iron ore, which gives Beijing the confidence to abruptly reject BHP shipments. Strictly speaking, this factor is not directly related to the sudden nature of the decision (after all, having alternative suppliers would typically lead to a gradual reduction in orders, not a last-minute cancellation after the cargo is already at sea). Still, it’s worth briefly outlining the major alternative sources of supply currently available to China.

First, there is the much-publicized Simandou iron ore project in Guinea, which is expected to begin production next year. The ore grade at Simandou is even higher than that of Australian mines, and Chinese investors hold roughly a 40 percent stake, making them the largest shareholder. Simandou represents a textbook example of Beijing’s Belt and Road approach of exchanging infrastructure investment for resource access.

Second, China is expanding iron ore imports from Brazil, a country that has developed increasingly close ties with Beijing. In May of this year, the two countries signed a bilateral currency swap agreement, enabling part of the iron ore trade to be settled in local currencies.

Third, technological advances have improved the efficiency of utilizing low-grade domestic ore and scrap steel recycling. According to the “Work Plan for Stabilizing Growth in the Steel Industry (2025–2026) (钢铁行业稳增长工作方案（2025-2026年）)” released earlier this year, China aims to raise its iron ore self-sufficiency rate to 25 percent and increase the share of electric arc furnaces—which process scrap steel—to 15 percent.

Beyond these substitution efforts, domestic demand for iron ore is also shrinking. In line with policies to curb overcapacity (“反内卷”), China has been tightening control over steel production, while the prolonged slump in the real estate market has further dampened demand for steel. Even without the alternative sources mentioned above, China’s overall need for iron ore may already be declining.

Hidden Cause: Power Struggle?

While many outside observers were speculating about Beijing’s motives, I reached out through personal contacts to a management-level employee from China Minmetals Group (中国五矿集团) based in Australia to ask for his perspective on the incident. His response was revealing and offers a glimpse into how the Chinese mining sector itself views the situation.

First, he explained that the positioning of China Mineral Resources Group is extremely ambiguous. It is effectively structured as an entity representing all major steel companies, while at the same time assuming a role similar to Minmetals’ traditional trading function. Within China’s state-owned enterprise system, such overlapping and unclear roles often signal competition over management and, in this case, bargaining power.

Second, he said the China Mineral had been aggressively demanding an exclusive long-term contract from BHP. However, companies like Minmetals and other large steel enterprises have built stable trading relationships with BHP over many years. From their perspective, the group’s intervention has been disruptive, seen as a spoiler in an otherwise stable supply chain. As a newly established central SOE—just over three years old—its assertive attempt to insert itself into existing commercial relationships appears to have triggered power frictions among China’s steel giants.

Finally, he noted that most steel companies had already finalized their import volumes for the year. In his words, the China Mineral “suddenly jumped out and pulled off this damned stunt (跳出来搞了个他妈的骚操作),” and “no one knows who’s backing them (不知道谁在给它撑腰).” His frustration underscored that this move was not part of any planned institutional arrangement but rather an abrupt administrative intervention. To other SOEs in the sector, the group’s mandate—much like its positioning—remains opaque. But it is clear that some level of authorization from higher up in Beijing was involved.

If this insider’s view reflects a broader sentiment in the steel industry, it suggests that the China Mineral’s rejection of BHP’s shipment was, to a significant degree, the result of a power struggle within China’s state-owned enterprise system rather than purely an external economic or geopolitical decision. As previously noted, the China Mineral’s formal function is to coordinate pricing, not to sign contracts nor even reject cargo. The fact that it was able to instruct the port to reject the shipment implies it received some kind of authorization from a higher-level entity in Beijing.

Other steel companies were not informed of where this authorization came from or what the strategic objective was—they only sensed that their operational turf had been suddenly encroached upon in an unconventional manner. The most plausible explanation is that, as China’s youngest central SOE, the China Mineral urgently needs to establish its authority in the strategically critical iron ore sector, especially when facing long-established steel giants such as Baowu (宝武钢) and Ansteel (鞍钢). And this assertion of authority appears to have been backed by the central government.

Yao Lin (姚林), the group’s party secretary and chairman, previously held top leadership positions at both Ansteel and Chinalco (中铝). It is unlikely that he would be content to lead a major new SOE merely as a coordination platform; his ambition and the central government’s expectations are clearly larger.

Whether this is part of a centrally endorsed effort to consolidate authority or a personal power play by Yao, the group’s actions have undeniably triggered friction among central SOEs in the steel sector. This internal struggle has spilled over into the external arena, becoming a flashpoint in Sino-Australian commodity relations. From Beijing’s perspective, this friction and the resulting standoff may be viewed as a necessary cost—a cost of empowering a new state-backed behemoth that will, in the long run, anchor China’s bargaining power in iron ore pricing and facilitate RMB settlement in bulk commodity trade.

In last post, I focused on insights from the China International Copper Forum (中国国际铜业论坛) in Xiong’an, Heibei (河北雄安新区), where Antaike (安泰科) experts suggested that policies to curb overcapacity in copper smelting could soon be introduced.

Now, new production data from Shanghai Metals Market (SMM) adds an operational dimension. In September, China’s refined copper output fell by 50,500 tons (-4.31% MoM), and SMM projects (internal report) another 38,500-ton decline in October (-3.43% MoM). The fall is driven by increased maintenance shutdowns (five smelters in September, six in October, affecting blister capacity of 1.0 Mt and 1.4 Mt respectively), continuing shortages of anode copper, and pressure on margins as TC/RCs remain at historic lows while sulfuric acid prices weaken.

This suggests that the slowdown in copper smelting is no longer just a topic for industry conferences, but a reality already reflected in monthly output. While some of these factors are cyclical or operational, they align with the broader trajectory discussed in policy circles: a sector moving from expansion toward more restrained growth.

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According to a contact in China’s metallurgical industry, Beijing Antaike (北京安泰科技), the information service platform of the China nonferrous metals industry, stated at the 23rd China International Copper Forum (第二十三届中国国际铜业论坛) held in Xiong’an, Hebei (September 24–26) that the country’s copper smelting industry is expected to slow its expansion and may even opt for production cuts in response to depressed treatment and refining charges (TC/RCs) for imported copper concentrate.

In a keynote presentation titled “China’s Copper Market Analysis and Outlook (中国铜市场分析与展望)”, He Xiaohui (何笑辉), a senior expert at Antaike, told forum participants that “policies aimed at curbing capacity expansion are expected to be implemented soon (旨在遏制产能扩张的政策预计将很快实施).” He explained that the China Nonferrous Metals Industry Association (中国有色金属工业协会) has already submitted recommendations to government authorities urging measures to prevent unchecked growth in the country’s copper smelting sector.

According to data released by Argus in July, China now accounts for roughly 50 percent of global copper smelting capacity, yet remains heavily dependent on imported copper concentrate. In recent years, smelting capacity has expanded far more rapidly than mine output, creating a persistent shortage of raw materials. Treatment and refining charges (TC/RCs) have fallen to historic lows—at times even turning negative—exposing the severe profitability pressures facing Chinese smelters. Argus forecasts that this supply-demand imbalance will persist in the near term, likely prompting smelters to cut output or delay expansion plans.

The rapid pace of capacity expansion has directly contributed to the sharp decline in TC/RCs, consistent with Argus’s assessment. In 2024, China added 680,000 tons of new blister capacity and 720,000 tons of refined capacity; this year, new additions are projected to reach 1.1 million tons and 1.3 million tons, representing year-on-year increases of more than 61 percent and 80 percent, respectively. Although an earlier report by Antaike analysts published in China Nonferrous Metals News (中国有色金属报) suggested that negative TC/RCs had not yet significantly affected refined copper output, Antaike’s chief expert Yang Changhua (杨长华) cautioned last week that smelters have increasingly been forced to rely on revenues from by-products such as sulfuric acid to offset losses from depressed processing fees in order to maintain cash flow—an unsustainable model for the industry’s long-term health.

Yang further projected that output growth from new projects launched this year—such as Guangxi Jinchuan Phase II (广西金川二期), Tongling Nonferrous (铜陵有色), and Chifeng Jintong Phase II (赤峰金铜二期)—will continue into next year. In the short term, however, he noted that TC/RCs for copper concentrate are unlikely to see a significant rebound.

According to the Copper Industry High-Quality Development Implementation Plan (2025–2027) (铜产业高质量发展实施方案（2025-2027年）) released by the Ministry of Industry and Information Technology earlier this year, new copper smelting projects are, “in principle (原则上)”, required to be supported by a corresponding share of equity-owned concentrate supply. In practice, this means that enterprises launching new smelting capacity must secure a portion of their raw materials from mines in which they hold controlling stakes. While the policy does not specify an exact ratio, my contact to the forum noted that Antaike’s He Xiaohui indicated the threshold is set at 35 percent. Projects failing to meet this requirement could face shutdowns in the future, making this self-sufficiency ratio an important criterion for determining which smelting operations will be subject to curtailment.

It is important to note that the slowdown in copper smelting expansion and the move toward production cuts are not simply an exercise in industry self-correction. Rather, they align closely with Beijing’s broader agenda of combating “involution” (反内卷) and promoting high-quality development (高质量发展). On July 30, 2024, the Politburo for the first time at the central level called for “strengthening industry self-discipline and preventing involutionary vicious competition (要强化行业自律，防止内卷式恶性竞争).” This directive was subsequently reinforced at the Central Economic Work Conference (中央经济工作会议), the Two Sessions (两会), and in regulatory adjustments by the NDRC (发改委) and the NPC Standing Committee (人大常务委员会). On July 1, 2025, the Central Financial and Economic Affairs Commission (中央财经委员会) went further, stressing the need to govern disorderly low-price competition in accordance with the law and to facilitate the orderly exit of outdated capacity (依法依规治理企业低价无序竞争，推动落后产能有序退出). Against this policy backdrop, the copper smelting sector’s restrained expansion and marginal production cuts can be seen as a sectoral manifestation of Beijing’s anti-involution campaign and a concrete implementation of its top-level directives.

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