ARTICLE
20 October 2025

China's Major Escalation Of Export Control Measures Has Profoundly Impacted The Global Supply Chain

KW
King & Wood Mallesons

Contributor

A firm born in Asia, underpinned by world class capability. With over 3,700 lawyers in 26 global locations, we draw from our Western and Eastern perspectives to deliver incisive counsel.

We are focused on our clients – people and organisations with distinctive ambitions and challenges. We are driven to understand your needs, solve your problems and unearth the right opportunities for you. Whether you're expanding globally or strengthening locally, our service style is dynamic, insightful, and tailored for you.

On October 9, 2025, the Security and Control Bureau of the Ministry of Commerce of the People's Republic of China and General Administration of Customs of the People's Republic of China, issued seven important announcements ...
China International Law
King & Wood Mallesons are most popular:
  • within International Law, Government, Public Sector and Strategy topic(s)
  • with Senior Company Executives, HR and Inhouse Counsel
  • in United Kingdom
  • with readers working within the Metals & Mining, Oil & Gas and Telecomms industries

On October 9, 2025, the Security and Control Bureau of the Ministry of Commerce of the People's Republic of China ("MOFCOM") and General Administration of Customs of the People's Republic of China ("GAC"), issued seven important announcements in accordance with the Export Control Law of the People's Republic of China ("Export Control Law"), the National Security Law of the People's Republic of China, the Anti-Foreign Sanctions Law of the People's Republic of China other laws with the aim of comprehensively strengthening export controls on China's entire rare earth industry chain, lithium battery-related industry chain, and superhard material-related items. In addition to the regulations, 14 foreign entities have been listed on China's Unreliable Entity List.

China's implementation of export controls seeks to control rare earth products produced overseas. This marks the first time MOFCOM has sought to exercise extraterritorial jurisdiction as established under Article 49 of the Regulations of the People's Republic of China on Export Control of Dual-Use Items ("Regulations on Export Control of Dual-Use Items") under the Export Control Law. These regulations are highly similar to the "Foreign Direct Product Rule" and "De Minimis Rule" under the U.S. Department of Commerce's Export Administration Regulations ("EAR").

For this reason most observers believe that seen together these actions indicate a major strategic step by China to mirror U.S. export control rules and safeguard China's national security and core industrial interests. China's recent measures will undoubtedly profoundly impact the future of the global semiconductor and battery industry supply chain.

This article first provides an overview of the key points from the seven newly released announcements to help readers quickly understand the overall policy framework. It then examines, in turn, the specific measures and compliance requirements relating to rare earth materials, lithium batteries and graphite products, and superhard materials (synthetic diamonds) introduced in this round of export control regulations. We then analyze the latest additions to MOFCOM's Unreliable Entity List and their potential implications, while we finally offer practical compliance and response recommendations to help businesses establish systematic risk identification and response mechanisms.

I. Overview of the Seven Announcements

This section briefly introduces the key points of the seven announcements, including the affected industries, a summary of the announcement content and the implementation date of the announcement.

II. Analysis on Export Control Measures for the Entire Rare Earth Industry Chain: Building an Export Control System for the Entire Rare Earth Industry Chain

Four of MOFCOM's announcements are in relation to export controls across the entire rare earth industry chain. These announcements, covering rare earth-related equipment, materials, technologies, and foreign products, establish a comprehensive export control system of unprecedented breadth and depth, encompassing the entire industrial chain and which also have elements of extraterritorial reach. These measures signal a fundamental shift in China's rare earth management strategy. China is moving from traditional resource management to strategic control over an entire industry's value chain and technological ecosystem.

The key points deserving particular attention include:

1. Aligning with the Extraterritorial Jurisdiction Rules for Items Subject to U.S. Export Controls

Article 1 of Announcement No. 61 stipulates that "foreign organizations and individuals exporting" rare earth-related items to countries and regions outside China (see Annex 1 for details) must obtain an export license for dual-use items issued by MOFCOM. This marks the first time China has systematically applied the extraterritorial jurisdiction rules of its export control framework, namely Article 49 of the Regulations on Export Control of Dual-Use Items, to extend the license application obligation to foreign organizations and individuals.

Moreover, as shown in the table below, the scope of control over rare earth-related items is very similar to Section 734.3 of the U.S. EAR. That is, MOFCOM has officially applied the "Foreign Direct Product Rule" and the "De Minimis Rule" to the rare earth industry, significantly expanding the scope of control over rare earth-related items.

2. License Application Approval Policy Based on End User and End Use

Articles 2 to 4 of Announcement No. 61 establish a set of graded licensing review policies based on the differences between end users and end uses. An "in principle, no permission is granted" review policy has been implemented for export applications for three categories of end users and three categories of end uses as shown in the table below. A "case-by-case" review policy applies to export applications for sensitive uses such as semiconductors and artificial intelligence (AI).

This policy of tiered licensing application review based on end-user and end-use has already been reflected in the Announcement No. 46 on Strengthening Export Controls on Relevant Dual-Use Items to the United States, previously issued by MOFCOM:

The following two points are worth noting in the license application review policy listed in Announcement No. 61.

(1)Introduction of the "50% Rule"

Announcement No. 61 introduces for the first time a compliance standard similar to the "50% Rule" implemented by the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") on September 29 this year within its license review policy. This new Chinese version of the "50% Rule" stipulates that licensing restrictions imposed on entities listed on Controlled Entities List and Watch List will automatically apply to subsidiaries, branches, and other affiliates of listed entities in which they hold a 50% or greater controlling stake, regardless of location. This will significantly increase the compliance risk associated with transactions involving listed entities.

(2)"Case-by-Case Approval" for Sensitive Applications such as Semiconductors and Artificial Intelligence (AI)

Announcement No. 61 stipulates that the "case-by-case approval" policy for sensitive applications such as semiconductors and AI. These measures are essentially a reciprocal countermeasure to use an area of China advantage (rare earth industrial chain) to target strategic fields (semiconductor and AI technologies) important to China's competitors. The "14nm and below logic chips", "256-layer and above memory chips" and "artificial intelligence with potential military applications" mentioned in the provisions as well as the these technical nodes and descriptions are almost identical to the core content of BIS's export controls imposed upon China in recent years.

The regulation is likely to have a material impact on enterprises active in the global semiconductor and AI industries. Although the chips themselves are silicon-based, the manufacturing process, especially for high-end processors, is highly dependent on rare earth materials.

Based on public information searches, we found that the following controlled items listed in Annex 1 of Announcement No. 61 are often used in the production of advanced chips, which will inevitably have a significant impact on the supply chain of semiconductor production, such as 14nm and below logic chips and 256-layer and above memory chips:

This review policy has the potential to directly and indirectly impact all facets of the global semiconductor industry chain:

  1. Heightened Risk of Supply Chain Disruption - Chip manufacturers with advanced process node fabs and their material suppliers face production disruptions if there are delays, restriction, or interruption to the supply of rare earth raw materials from China;
  2. Significant increase in Operating Costs - the realization of unsustainable dependency will result in companies being forced to develop non-Chinese sources of rare earth materials and this will increase costs. Also there will be costs associated with complying with the "case-by-case approval" policy. Compliance will require companies to submit detailed end-use and end-user descriptions and make commitments when applying for export licenses. Companies will need to invest significant time and effort to establish strict internal compliance review mechanisms as well as preparation of the applications;
  3. License approval outcomes may be influenced by geopolitics. Chinese rare earth material export licenses may depend not only on commercial contracts but also the political relationship its home country has with China.

3. "Catch-All Clause" for Rare Earth-Related Technology Control and the Refinement of the Definition of "Export"

Announcement No. 62 forms the core foundation of the rare earth extraterritorial control mechanism by imposing export controls on key technologies which support the development of the rare earth industry. These controlled technologies not only require a license for export from China but are also considered upstream technologies under the "foreign direct product rule" in Announcement No. 61. This means specific rare earth products produced using these technologies abroad are also subject to China's export controls.

The control logic under this measure is very similar to the foreign direct product rule under U.S. EAR Section 734.9. Under the EAR, the basic control logic of the foreign direct product rule is that for specified entities or destinations, if an item produced outside the United States is a direct product of certain specified U.S.-origin technology or software, or if it is produced by a foreign plant or a major component of a plant that itself is a direct product of such U.S.-origin specified technology or software, then the item produced abroad is considered to be subject to the EAR. Announcement No. 62 clarifies the scope of technologies that would trigger Chinese export control jurisdiction over rare earth products produced abroad, while Article 1(2) of Announcement No. 61 specifies which overseas-produced rare earth-related products are subject to China's export controls. Together, these two announcements establish a prototype of a "Chinese version" of the foreign direct product rule. This will significantly expand the range of rare earth–related products falling under control.

The technologies regulated in Announcement No. 62 include:

  • Rare earth mining, smelting and separation, metal smelting, magnetic material manufacturing,1 rare earth secondary resource recycling and related technologies and their carriers,2 (Control Code: 1E902.a)
  • Technologies for assembly, commissioning, maintenance, repair, and upgrading of production lines related to rare earth mining, smelting and separation, metal smelting, magnetic material manufacturing, and recycling of rare earth secondary resources.

Notably, Announcement No. 62 introduces a "catch-all clause" requiring a license even for non-controlled items, technologies, or services if the exporter is aware that the items are used for, or substantially contribute to, overseas rare earth mining, smelting and separation, metal smelting, magnetic material manufacturing, or rare earth secondary resource recycling. The legal basis for this "catch-all clause" stems from Article 12 of the Export Control Law, which stipulates that even items not on the control list or temporarily controlled items may require an export license if their export poses a risk of endangering China's national security or interests.

In addition, Announcement No. 62 further specifies that an "export" as defined in the Regulations on Export Control of Dual-Use Items, is expanded to include intellectual property licensing, joint research and development projects, employment or hiring decisions. Announcement No. 62 explicitly imposes compliance review obligations on enterprises, especially joint ventures, when engaging in cooperative technology development, sharing, consulting, and personnel recruitment activities.

4. Personal Jurisdiction over Activities Related to Rare Earth Production

Article 7 of Announcement No. 62 stipulates that Chinese citizens, legal persons and unincorporated organizations shall not provide any substantial assistance or support for overseas rare earth mining, smelting and separation, metal smelting, magnetic material manufacturing, and rare earth secondary resource recycling and utilization activities without permission. Persons or entities ignoring the prohibition face punishment in accordance with relevant Chinese export control regulations.

III. Introduction to Export Control Measures for the Lithium Battery Industry Chain: Increasing Controls on the New Energy Industry Chain

Announcement No. 58 stipulates that, effective November 8, 2025, export controls will be implemented on lithium batteries of specified specifications, key battery materials (positive and negative electrodes), as well as their production equipment and technology. This marks the second time China has expanded its control over key mineral resources, including rare earths, gallium, and germanium, to include new energy vehicles and energy storage. This is another strategic industry in which China holds a dominant position globally.

This new export control rule will have a significant impact on global automakers, battery manufacturers, energy storage companies and even consumer electronics companies.

  1. The global electric vehicle and energy storage industries face cost and supply risks: International auto and battery giants are highly dependent on Chinese batteries and materials. They will face greater uncertainty in obtaining high-end batteries and key materials going forward.
  2. New impetus to China supply chain "de-risking". Post Covid de-coupling was a stated imperative for many companies. We expect this to accelerate again as a strategic imperative. The problem is that finding short-term replacements for China is challenging. Serious decoupling will force international companies to increase their investment in new non-Chinese supply chains. This will encompass measures such as developing graphite resources in Africa and South America, accelerating research and development of alternative technology routes such as sodium-ion batteries and solid-state batteries. However, given the massive scale and cost advantages of China's industrial chain, the possibility of complete replacement in the short term is extremely low.
  3. Go Global Challenge – due to the new regulations Chinese companies will face new challenges when building capacity overseas: Chinese battery and material companies that are rapidly expanding globally will now need to apply for export licenses when transferring their core equipment and proprietary technologies in China to overseas factories in the future. These requirements will require many Chinese champions to rethink their globalization strategy.

IV. Export Controls on Superhard Materials: Control over "Industrial Teeth" - Artificial Diamonds

Announcement No. 55 announced the implementation of export controls on certain types of synthetic diamond-related items, effective November 8, 2025. As the world's largest producer of synthetic diamonds, China has extended its export control toolkit to include superhard materials, often referred to as the "teeth of industry." This policy will have a profound impact on global manufacturing, particularly key sectors such as photovoltaics, semiconductors, and precision machining.

Announcement No. 55, by setting precise technical parameters, focuses its controls on high-end, industrial-grade applications with high strategic value and strong dual-use capabilities. The core controlled items fall into three categories: industrial- grade diamond raw materials, high-precision processing tools (synthetic diamond wire saws and synthetic diamond grinding wheels), and specific cutting-edge manufacturing equipment and technologies (such as DC plasma jet chemical vapor deposition (DCPCVD) equipment and process technologies). Furthermore, Announcement No. 55 explicitly states that cultured diamonds used for decorative purposes and jewelry are not considered controlled "synthetic diamond single crystals,". This shows the Chinese authorities are clearly distinguishing between strategic industrial products (sensitive) and ordinary consumer goods (not strategic).

V. MOFCOM has Added 14 Entities, Including TechInsights, to its Unreliable Entity List

On October 9, 2025, the Security and Control Bureau of MOFCOM issued Document No. 10 [2025] of the Working Mechanism for the Unreliable Entity List, which added 14 foreign entities (see Annex 2 for details) to the Unreliable Entity List and implemented the following measures:

  • The above-mentioned entities are prohibited from engaging in import and export activities related to China
  • The above-mentioned entities are prohibited from making new investments in China
  • Organizations and individuals within China are prohibited from engaging in transactions, cooperation and other activities with the above-mentioned entities, especially transmitting data or providing sensitive information.

Unlike previous sanctions, which primarily targeted foreign defense-related entities, the newly listed entities include the internationally renowned research institute TechInsights. TechInsights is an authoritative information platform for the semiconductor industry, recognized as a source of reliable and in-depth intelligence on semiconductor innovation and related markets. Public reports indicate that in October 2024, TechInsights disassembled domestically produced advanced chips manufactured by a Chinese company and discovered that the chips contained components produced by a leading chip manufacturer. TechInsights informed the chip manufacturer of this discovery before publishing its report, prompting the chip manufacturer to notify the US Department of Commerce.3 Subsequently, BIS issued an is-informed letter to the chip manufacturer, requiring it to cease supplying 7nm and higher-level AI chips to mainland Chinese customers starting November 11, 2024.4 On October 3, 2025, TechInsights again reported that the the same series of domestically produced advanced chips by the Chinese company used components from several leading semiconductor industry manufacturers.5

It is worth noting that in response to reporters' questions, the spokesperson of the MOFCOM stated that the reasons for including TechInsights in the Unreliable Entity List included "making malicious remarks about China, assisting foreign governments in suppressing Chinese companies, and seriously damaging China's national sovereignty, security and development interests;" this announcement also clearly prohibits "transferring data and providing sensitive information to the above-mentioned entities."

This is the first time such reasons and sanctions have been used. It is likely that MOFCOM considers TechInsights's disassembly reports to have led to BIS imposing stricter export control measures on Chinese companies. This in turn would constitute "assisting foreign governments in suppressing Chinese companies." We expect MOFCOM may adopt a more proactive stance in future countermeasures. This may include broadening the definition of "harming development interests" to include actions that use information, data, and public opinion to serve geopolitical agendas which thereby undermines China's industrial development environment, damages corporate reputations, and provides decision-making support for foreign governments to implement discriminatory regulatory measures against China.

VI. Our Viewpoint

China's ramping up of export control measures demonstrates a significant deepening of MOFCOM's regulatory scope and enforcement mechanisms and eagerness to protect strategic industrial sectors. On one hand, the scope of control has been further expanded to cover the entire rare earth industrial chain, lithium battery-related industrial chains, and items related to superhard materials. On the other hand, China has previously established a legal foundation in the Regulations on the Export Control of Dual-Use Items that is similar to the U.S. "Foreign Direct Product Rule" and "De Minimis Rule." This round of measures marks the first time these rules have been systematically applied to specific rare earth products produced overseas, and a Chinese-version "50% Rule" has been introduced into the licensing policy.

China is building a complex regulatory framework equivalent in structure and effectiveness to the U.S. export control system. China's export control system is still in a nascent stage and will continue to grow and improve. The current round of measures represents the concrete implementation and further advancement of previous legislative achievements, and we also anticipate that the relevant law enforcement mechanisms will gradually mature.

Against this backdrop, to systematically identify, assess, and address potential risks, enterprises should carry out the following work:

Action Item 1 - Review Controlled Items in Process and Determine Whether a License Is Required

Companies that may be impacted by the regulations should immediately organize a comprehensive internal review to identify materials involved in production that fall within the scope of the new controls and thereby determine whether a license is required. Measures to be taken include:

  1. Establishing an internal screening checklist: compiling a detailed self-checklist of all controlled items and their technical parameters in various export control announcements;
  2. Conducting a comprehensive inventory of products and technologies: Organize R&D, production and technology departments to conduct a comprehensive inventory of all the company's current and planned exported products, materials, equipment, and technology exports;
  3. Clarify the scope of license applications: Based on the inventory results, a clear list of items requiring export licenses will be compiled. For items whose parameters are close to, but not yet satisfy, the control threshold, a file will also need to be established so that, upon customs declaration, they can be marked "not a controlled item" and provided with specific parameters, as required by customs.

Action Item 2 - Prepare for License Application Process

Impacted companies will need to fully understand China's dual-use item licensing approval process and cycle, and also prepare application materials as required.

To this end, we have prepared a detailed introduction for companies' reference:

Action Item 3 - Develop a China Export Control Compliance System

Export control compliance requirements change in real time. Enterprises should pay close attention to relevant policy developments, comprehensively identify the final uses of the supply chain and end users, and avoid triggering major compliance risks due to undeclared or misjudged uses.

Furthermore, Announcement No. 61 stipulates that domestic exporters must issue a "Notice of Compliance" to foreign importers and end-users when exporting dual-use items listed in Part 1 of Annex 1 to the Announcement. Foreign exporters must also issue a "Notice of Compliance" to the next recipient when transferring or exporting items controlled by this Announcement. Therefore, operators in relevant industries should standardize the issuance and receipt of "Notices of Compliance."

Action Item 4 - Comprehensively Review the Control Status of Transaction Counterparties

Relevant companies should thoroughly investigate any transactions made with the 14 entities listed in Document No. 10 [2025] of the Working Mechanism for the Unreliable Entity List. The investigation should include reviewing contracts, payments, data exchanges, emails, and meeting participation. They should immediately issue internal notices strictly prohibiting any department or employee (especially those in mainland China) from engaging in any form of contact or cooperation with listed entities. All related contracts should be suspended, and all payments and data transfers should be halted.

Companies that are at heighted risk of geopolitical sensitivities may wish to conduct due diligence on other suppliers that may be at risk. This would particularly apply to professional service providers such as research, consulting, auditing, and legal service providers. They should focus on assessing the nature of their business, their public positions, and the likelihood that their reports or services could be used by foreign governments as a tool for sanctions against China. Once such risks are identified, companies should promptly prepare alternative suppliers to mitigate the risk of supply chain disruptions caused by future Chinese countermeasures.

Footnotes

1. "Magnetic material manufacturing" technology refers to the manufacturing technology of samarium cobalt, neodymium iron boron and cerium magnets.

2. Technology and its carriers, including technology-related information and other data, such as design drawings, process specifications, process parameters, processing procedures, simulation data, etc.

3. See Reuters report "Exclusive: TSMC told US of chip in Huawei product after TechInsights finding, source says, "https://www.reuters.com/technology/tsmc-told-us-chip-huawei-device-after-techinsights-finding-source-says-2024-10-22/ .

4. See Reuters report "Exclusive: US ordered TSMC to halt shipments to China of chips used in AI applications," https://www.reuters.com/technology/us-ordered-tsmc-halt-shipments-china-chips-used-ai-applications-source-says-2024-11-10/ .

5. See Bloomberg's report, "Huawei Used TSMC, Samsung, and SK Hynix Components in Top AI Chips," https://www.bloomberg.com/news/articles/2025-10-03/huawei-used-tsmc-samsung-sk-hynix-components-in-top-ai-chips .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More