China's rare earth export controls escalate: The next "bottleneck" risk for the semiconductor supply chain?

Introduction

In October 2025, China announced the expansion of its rare earth export controls, extending from traditional restrictions on raw material exports to permanent magnets, processing equipment, technology transfers, and even foreign-manufactured products containing Chinese-origin components. This move marks a strategic upgrade for China in the rare earth sector, shifting from “resource control” to “full industrial chain control.” For India, which is heavily dependent on rare earth imports from China, its semiconductor, electric vehicle (EV), clean energy, and defense manufacturing industries face severe challenges.

Rare earth elements (especially neodymium, praseodymium, dysprosium, terbium, etc.) are indispensable key materials in semiconductor manufacturing: cerium oxide polishing powder for chemical mechanical polishing (CMP), high-precision magnetic components (e.g., permanent magnets in lithography machines), specialty alloys, and magnetic shielding materials in advanced packaging. China currently controls approximately 60-70% of global rare earth mining and about 90% of processing capacity, a monopoly that enables it to wield rare earths as a “weapon” in geopolitical games.

This article, based on ORF Occasional Paper No. 562, analyzes the impact of this tightened control from the perspective of the semiconductor supply chain and explores strategic responses for India and related countries.

Background: The Evolution of China’s Rare Earth “Chokepoint”

China’s control over rare earth exports is not new. During the 2010 Sino-Japanese Diaoyu Islands dispute, China briefly restricted rare earth exports, triggering a global price surge. Since then, China has gradually strengthened export quotas and tariff controls. In 2023, China revised its Export Control Law to include rare earth extraction and separation technologies under restriction. The new regulations in October 2025 further brought permanent magnets, processing equipment (e.g., sintering furnaces, heat treatment devices), and related technology transfers under control, and implemented a variant of the “foreign direct product rule”—that is, goods produced overseas using Chinese technology or raw materials are also subject to restrictions.

This “long-arm jurisdiction” approach mirrors U.S. export control strategies for semiconductor equipment, but China applies it to the rare earth sector, demonstrating its intention to convert upstream resource advantages into geopolitical leverage.

In-Depth Analysis

Technology Impact

• Technology routes involved:
• CMP polishing materials: Cerium oxide is a key component for oxide polishing in advanced process nodes (7nm and below). China controls approximately 85% of the global cerium oxide supply. A supply cut would leave wafer fabs facing a shortage of polishing slurry, directly affecting yield and capacity.
• Magnetic materials: Neodymium-iron-boron permanent magnets are used in precision motion stages of EUV lithography machines, focusing systems of ion implanters, and sensors in testing equipment. High-energy-product sintered neodymium-iron-boron is supplied almost entirely by China.
• Advanced packaging: Rare earth-containing alloys (e.g., samarium cobalt) used for electromagnetic shielding in heterogeneous integration are also highly dependent on China.

Technical barriers: Rare earth separation and smelting technologies themselves have high patent barriers, and China has accumulated long-standing experience in deep-sea ion-type rare earth mining and environmental processing.Technical Barriers: Rare earth separation and smelting technologies themselves have high patent barriers, and China has accumulated long-term experience in deep-sea ionic rare earth mining and environmental treatment. Alternative technologies (such as recycling, substitute materials) are not yet mature in the short term.

Supply Chain Impact

Upstream: China controls global rare earth mining and separation capacity. Although U.S. MP Materials owns a mine in California, it still needs to ship ore to China for processing. The 2025 new regulations directly restrict the export of separation technologies and equipment, cutting off the path to building processing plants overseas.

Midstream: Permanent magnet manufacturing and equipment manufacturing are also constrained by China. Companies like Japan's Shin-Etsu Chemical and Germany's VAC have some capacity but are highly dependent on China for raw materials. Under the new regulations, even magnets produced by non-Chinese companies using Chinese rare earth raw materials may be subject to traceability controls.

Downstream: In semiconductor manufacturing, the supply chains of lithography machines (ASML), etching equipment (Lam Research), and CMP equipment (Applied Materials) all contain rare earth components. If fabs cannot secure alternative rare earth sources, it may lead to delays in equipment maintenance or new equipment delivery.

Beneficiaries: Non-Chinese rare earth miners such as Australia's Lynas Rare Earths and U.S. MP Materials are expected to gain more orders, but processing capacity bottlenecks are difficult to resolve in the short term. India's IREL has coastal sand resources but lags in processing technology.

Risk Exposed: India's semiconductor manufacturing (e.g., Tata Electronics' wafer fab project), South Korea's Samsung, TSMC, etc., all use large amounts of rare earth materials. India's EV batteries and defense electronics are equally vulnerable.

Competitive Landscape

• United States: Accelerating rare earth processing capacity construction through the *Defense Production Act* and cooperation with Australia and Canada, but establishing a complete supply chain will take 5–10 years.
• South Korea: POSCO and Samsung are signing long-term agreements with Lynas, but processing equipment remains constrained by China.
• Japan: Has advanced recycling technology but limited scale.
• India: Relies on imports and has weak processing capabilities, placing it at a competitive disadvantage.

Regional Implications- China: Further consolidates its stranglehold position in the rare earth supply chain, potentially used to counterbalance U.S. restrictions on semiconductor equipment. - India: Faces severe risks of hindered development in the semiconductor and EV industries. India's National Critical Minerals Mission (NCMM) aims to reduce dependence through mineral exploration, recycling, and international partnerships, but significant funding and technology gaps remain. - Australia/Canada: As alternative supply sources, they are accelerating rare earth mining development, but environmental approvals and cost control are challenges. - Southeast Asia (Vietnam, Myanmar): Possess rare earth resources, but lack technology and investment, and may face geopolitical uncertainties.

Investment Perspective

Capital markets have begun to reassess rare earth supply chain risks: rare earth mining company stocks have risen (e.g., Lynas), while semiconductor equipment manufacturers dependent on Chinese supply face rising cost pressures. In the long term, rare earth recycling, alternative materials (e.g., ferrite replacing neodymium-iron-boron), and rare-earth-free motors (e.g., Tesla's induction motors) will attract R&D investment.

Long-Term Outlook

• 3 years: Global rare earth supply remains highly dependent on China; the effects of controls will become apparent in 2026–2027, forcing semiconductor companies to stockpile inventory and seek alternatives.
• 5 years: Processing capacity in the U.S. and Australia will begin initial production, but costs will be higher than China's. India may obtain partial technology transfer through cooperation with the Quad.
• 10 years: Recycling technology and alternative materials are expected to mature, but China will remain the low-cost leader. Regionalization of the semiconductor supply chain will accelerate.

Industry Chain Analysis

Upstream (rare earth mining and separation): China's monopoly is hard to shake in the short term. India has coastal placer mineral resources, but with low grades, and processing technology needs to be imported.

Midstream (materials and components): Intermediate products such as permanent magnets and polishing powders are also concentrated in China. South Korean and Japanese companies are trying to set up factories overseas but face equipment control issues.

Downstream (semiconductor manufacturing/equipment): Wafer fabs and equipment manufacturers have relatively low but critical dependence on rare earths. If supply is cut off, high-end equipment like lithography machines could halt production.

Conclusion

China's escalation of rare earth export controls in October 2025, following its semiconductor equipment controls, constitutes another chokehold move that directly threatens the stability of the global semiconductor supply chain. For India, its semiconductor, EV, and defense industries' heavy reliance on imported rare earths, coupled with its weak processing capabilities, leaves it in a vulnerable position in the supply chain game. India needs to accelerate the National Critical Minerals Mission, deepen technical cooperation with the U.S., Australia, and Canada, and invest in rare earth recycling and alternative material R&D.For the global semiconductor industry, the autonomy of the rare earth supply chain will become a strategic issue as important as advanced manufacturing processes. In the next decade, the establishment of "rare earth-free" technologies and diversified supply sources will be key to ensuring industry security.