Chinese President Xi Jinping (right) and Japanese Prime Minister Takaichi Sanae held a summit meeting on the occasion of the Asia-Pacific Economic Cooperation (APEC) summit held in Gyeongju on Oct. 31 last year.
As China deployed its dual-use items export ban card on Jan. 6, Japan assessed that “China’s pressure measures have entered a second phase” and is focusing on understanding the situation.
While China’s Ministry of Commerce did not mention specific export ban items, if dual-use materials exported to Japan are broadly considered, estimates suggest it could exceed a maximum of 10 trillion yen (approximately 92.619 trillion won or $64.3 billion) annually across all related Japanese industries.
On Jan. 7, Japanese media outlets including the Nikkei analyzed that China’s announcement of the dual-use items export ban the previous day was a measure that raised the level of pressure against Japan by one notch. The Sankei Shimbun evaluated that “with the Chinese government announcing the dual-use items export ban, pressure against Japan regarding Prime Minister Takaichi Sanae’s parliamentary response (related to her suggestion of intervention in a Taiwan contingency) has entered a second phase.”
Since Prime Minister Takaichi made Taiwan-related remarks in November, China has implemented economic retaliation measures including travel and study restrictions to Japan and resumption of bans on Japanese seafood imports, but the impact was limited.
The Japanese government appears flustered as China suddenly declared export restrictions while Prime Minister Takaichi had emphasized her existing stance of being open to dialogue with China at a New Year’s press conference on the 5th.
Chief Cabinet Secretary Kihara Minoru, the Japanese government spokesperson, expressed deep regret over these export restrictions while being cautious about whether rare earth elements are included, stating it remains “an unclear situation for now.”
China specifically targeted Japan as the subject of this dual-use items export ban and clearly revealed its pressure intentions by using the expression “helpful for military capability enhancement,” which leaves room for arbitrary interpretation. It also specified that the pressure background is retaliatory in nature against Prime Minister Takaichi’s remarks suggesting “intervention in a Taiwan contingency.”
A spokesperson for China’s Ministry of Commerce stated, “Japanese leaders recently openly made wrong statements regarding Taiwan, implying the possibility of military intervention in the Taiwan Strait,” adding that “this constitutes rude interference in China’s internal affairs and seriously violates the ‘One China’ principle, with extremely bad nature and impact.”
Kyodo News observed that “the Chinese government has repeatedly demanded retraction of (Prime Minister Takaichi’s) remarks, so economic coercion is likely to be prolonged.”
Some quarters worried that up to 40% of China’s exports to Japan could be subject to regulations. This amounts to over 10 trillion yen annually.
Kiuchi Takahide, chief economist at Nomura Research Institute, said, “China’s Ministry of Commerce explains that dual-use items that could be used by Japan’s military-related users or lead to military capability enhancement are subject to export restrictions, so a wide range of items could potentially be included.” Specifically, he noted that △electrical equipment and electronic components such as semiconductors, integrated circuits, and electronic parts △precision machinery such as medical devices and optical equipment △chemicals such as lithium compounds and rare earth elements related to electric vehicle (EV) batteries △communication equipment △PCs and related items could be included.
According to Japan’s Ministry of Finance trade statistics, in 2024, Japan imported 7.7 trillion yen (approximately 71.3 trillion won) worth of electrical equipment, electronic components, and communication devices from China, 2.4 trillion yen worth of PCs (including peripherals and components), 400 billion yen worth of scientific and optical equipment among precision machinery, and 200 billion yen worth of rare earth elements. Combined, this totals 10.7 trillion yen, accounting for over 40% of total imports from China during this period (25.3 trillion yen).
While Japanese companies have been pursuing supply chain diversification, they still depend on China for approximately 60% of their total demand. Particularly for heavy rare earth elements like dysprosium and terbium, which are auxiliary materials for neodymium magnets used in electric vehicle (EV) motors, Japan depends almost 100% on China. If supply is cut off, related manufacturing industries would inevitably face pressure for production reduction or suspension.
Previously, China implemented de facto rare earth export restrictions against Japan after the Chinese fishing vessel collision incident near the Senkaku Islands (Chinese name: Diaoyu Islands) in 2010. Nikkei reported that “in 2010, (China’s) export management legal system was not established, but pressure was applied to Japan through reasons such as procedural delays.”
According to chief economist Kiuchi, if rare earth export restrictions continue for three months, Japan’s losses are estimated to reach 660 billion yen (approximately 6.1128 trillion won). In this case, Japan’s gross domestic product (GDP) would decline by 0.11 percentage points (p) in both nominal and real terms. If related restrictions continue for one year, losses are expected to expand to approximately 2.6 trillion yen (approximately 24.809 trillion won), with GDP decline effects expanding to 0.43%p.
There is also a possibility that Japan may counter with “tit-for-tat” measures to resolve the situation. In this case, Japan might implement export restrictions on some semiconductor materials such as photoresist, similar to the de facto retaliatory measures it took in 2019 against South Korea’s Supreme Court ruling on forced labor compensation.
The Ministry of Foreign Affairs reported that Director-General Kanai exchanged views on regional situations through a phone call with U.S. Assistant Secretary of State for East Asian and Pacific Affairs Michael Disenberry and reconfirmed the policy of close cooperation between the United States and Japan.
As the conflict between the two countries continues, attention is focused on the impact on domestic industries. The government is confirmed to hold a review meeting with officials from semiconductor, automotive, and other industry associations tomorrow (the 8th). An industry association official conveyed the position that “due to delays in Japan’s supply chain, there will be some impact on production disruptions in domestic industries” and “we are monitoring the situation.”
Particularly, as China’s dual-use item restrictions also prohibit exports through third countries, exports to Japan through South Korea could also become subject to sanctions, potentially increasing burdens on domestic companies, which are monitoring the situation.
Especially this time, unlike China’s control of rare earth elements to Japan in 2010, the pressure level has increased with the inclusion of 1,005 strategic minerals including tungsten and germanium.
It remains to be seen whether China’s rare earth export restrictions that stopped U.S. Ford plant operations will also work on Japan, or whether Japan will counterattack more strongly.
