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China tightens grip on critical minerals, threatening electronics supply

Flora Wang, Taipei; Sherri Wang, DIGITIMES Asia 0

Credit: DIGITIMES

As trade tensions between the US and China intensify, rare earth minerals have once again become the focal point of a global strategic contest. In a surprise move, China's Ministry of Commerce has imposed sweeping new restrictions on rare earth exports, extending controls beyond raw materials to include related technologies, blueprints, maintenance, and services.

The expanded measures, aimed at tightening China's grip on its most critical strategic resources, have rattled global markets. Industry players are voicing renewed concerns that the passive component supply chain could face another round of disruptions, potentially affecting orders across the consumer electronics and AI server sectors.

Passive component makers on alert

Taiwan's leading passive component manufacturers are already activating contingency plans. Yageo Group confirmed that it is working closely with clients to develop joint solutions in the event of supply interruptions.

Yageo chairman Pierre Chen previously noted that while the company has explored sourcing from Africa and Canada, switching suppliers is a major undertaking. It involves significant redesigns and complex adjustments to material lists, a process that demands considerable time and resources.

Meanwhile, Walsin Technology has taken a different approach. Chairman Yu-Heng Chiao revealed that an investment in Japan's FDK Corporation, a major battery producer, gave Walsin access to a rare earth firm in Baotou, Inner Mongolia. The deal allows Walsin to control key materials, refining, and R&D, effectively integrating its supply chain from the source.

China's strictest-ever export rules

The latest controls add five new mid-to-heavy rare earth elements: europium, holmium, erbium, thulium, and ytterbium, along with their alloys. More importantly, the regulations now cover the entire supply chain, from upstream mining and midstream processing to downstream applications and production equipment.

One of the most stringent rules involves "third-country re-exports." Under this clause, any foreign-made product containing Chinese rare earth materials or using Chinese refining technology will also fall under Beijing's control, a provision many analysts are calling the "strictest rare earth ban in history."

Retaliation through resources

While nations like the US and Australia have rare earth reserves, analysts note China still dominates the crucial refining and separation stages, controlling over 85% of global capacity. With export reviews now expected to be longer and more complex, the restrictions could create severe supply and demand imbalances. This would likely send prices for several elements soaring and intensify cost pressures across the industry.

For Taiwanese companies like Walsin, securing early export permits could become a long-term competitive advantage in a tightening global market.

China has long used its dominance in rare earths as leverage against US semiconductor restrictions. During US President Donald Trump's chip blockade, Beijing responded with its first round of export controls, targeting seven elements, including samarium, dysprosium, and yttrium.

However, the plan backfired due to lengthy approval times. Chinese tech giants, including Huawei, Xiaomi, and Vivo, struggled to get essential passive components from foreign suppliers, forcing them to postpone several product launches.

Ripple effects for AI servers

Among the products most affected are multilayer ceramic capacitors (MLCCs). These components are essential for AI servers and rely on rare earth elements like yttrium, lanthanum, and neodymium. Although the volume used in each capacitor is small, these materials play a vital role in improving ceramic reliability, making them an irreplaceable part of modern electronics.

With China's latest restrictions squeezing global supply once again, the electronics and AI hardware industries face an uncertain future, where the smallest element could trigger the next major disruption.

Article edited by Jack Wu