PRC Shift Signals ‘Reverse Constrainment’

Executive Summary:

• Trade between the United States and the People’s Republic of China (PRC) is now defined by selective weaponization, not interdependence or decoupling. Both sides are learning to use high-value channels of exchange—technology, materials, and capital—as instruments to shape the other’s behavior.
• Neither seeks full decoupling; instead, each exploits the persistence of trade ties to impose costs and extract concessions. Trade now carries an overtly strategic rationale as well as an economic one.
• The PRC’s rare-earth control regime represents the material counterpart to U.S. semiconductor restrictions. Xi Jinping’s long-term economic doctrine redefined dependence as a countermeasure, treating supply-chain dominance as a form of deterrent power.
• Beijing has built a centralized architecture of control over rare earths, transforming fragmented measures into a coherent national system. The new framework is anchored by MOFCOM, MIIT, and SASAC. It integrates licensing power, enterprise control, and data oversight under a national security mandate, allowing Beijing to regulate global supply chains in real time.
• In October, Beijing’s export-control regime completed the transition from ambiguous export tightening and trade leverage to full strategic confrontation—and deterrence. MOFCOM’s export control announcements exposed the system’s full operational reach and its intended target, U.S. military power, positioning “reverse constrainment” as its answer to Washington’s technology controls.
• The result is a short- to medium-term strategy of strategic denial. With global substitution years away, Beijing can now slow adversaries’ industrial and defense mobilization on demand, testing the limits of coercive interdependence and shaping the strategic environment ahead of potential flashpoints such as Taiwan.

During the 2020s, the focus of the trade relationship between the United States and the People’s Republic of China (PRC) has shifted from managing interdependence to competing for dominance in critical technologies and supply chains. The change reflects a deeper structural shift: the narrowing of the technological and industrial gap between the two powers. As the PRC’s manufacturing and innovation capacity has converged with that of the United States, the logic of cooperation that governed globalization for three decades has given way to one of strategic denial and control. Both sides have entered a new phase in which supply chains have become instruments of coercion; Washington through technology export restrictions and Beijing through material leverage.

For Washington, this has meant using export controls, investment restrictions, and supply-chain reshoring to deny the PRC access to the tools of technological dominance. For instance, the U.S. Department of Commerce’s comprehensive package of semiconductor export controls aimed at constraining the PRC’s advanced-computing and chip-manufacturing capacity combined several tools: new restrictions on exports of advanced logic and memory chips, licensing requirements for U.S. persons supporting Chinese fabrication facilities, limits on manufacturing equipment and components, and an expansion of the Foreign Direct Product rule to cover items made abroad with U.S. technology (Industry and Security Bureau (BIS), October 13, 2022). Together, these measures effectively cut Chinese firms off from the hardware, software, and technical expertise required for state-of-the-art semiconductor production. Over 2023, additional rules extended to lithography, electronic design automation (EDA) software, and AI accelerators, effectively sealing off the PRC’s path to cutting-edge semiconductor fabrication (BIS, October 25, 2023).

Beijing’s response emerged from long-range planning to weaponize supply-chain dependencies, an effort years in the making that aimed to turn the architecture of globalization itself into an instrument of state power. As early as April 2020, General Secretary Xi Jinping had already begun conceptualizing the “international industrial chain’s dependence on China” (国际产业链对我国的依存关系) as a mechanism for launching “powerful countermeasures and deterrence capabilities” (强有力反制和威慑能力) against external competitors (Qiushi, October 31, 2020). Within Xi’s doctrine of long-term “struggle” (斗争) with capitalism, interdependence was not a vulnerability to be escaped but a weapon to be wielded (Foreign Affairs, November 30, 2022). Supply chain control over the materials, components, and logistics that anchor the world economy was framed as both an offensive and defensive capability: the means by which Beijing could deter coercion and impose costs on those who sought to contain it.

Between 2023 and 2025, this idea took institutional form. Beijing’s policymakers moved from rhetoric about “supply-chain resilience” to building an architecture of counter-constrainment grounded in control over critical minerals.

1. Testing Leverage (2023–2024): Following U.S. chip restrictions, the PRC introduced export controls on gallium, germanium, graphite, tungsten, and antimony, testing the leverage of raw-material scarcity and the diplomatic cost of deploying it. In December 2023, Beijing banned the export of rare-earth separation technologies, signaling that it could freeze Western capacity expansion at will.
2. Building the Architecture (April–May 2025): The release by the Ministry of Commerce (MOFCOM) of Announcement No. 18 and the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) decision to mobilize China Minmetals transformed a decade of fragmented resource management into a centralized minerals strategy. Enforcement campaigns in May institutionalized “full-chain control,” linking export licensing, discipline of state-owned enterprises (SOEs), and data traceability.
3. Operational Consolidation (June–September 2025): Under the guise of “law-based export management” (依法进行贸易管理) MOFCOM’s selective approval process and the Ministry of Industry and Information Technology (MIIT) decision to implement a new “total-volume control” (总量控制) system demonstrated the state’s ability to control real earth exports in real time.
4. Reverse Constrainment Unveiled: On October 9–12, Beijing unveiled four new export control directives that extended jurisdiction abroad—in essence, its own Foreign Direct Product regime. These explicitly identified rare earths as materials of significance to national defense. This completed the transformation of resource governance into an instrument of deterrence.

Together, these stages constitute what may be termed the PRC’s reverse-constrainment strategy: a systematic effort to impose friction on Western industrial and defense mobilization just as the United States has sought to slow the PRC’s technological rise.

While U.S. and allied initiatives to rebuild rare earth and critical mineral capacity outside the PRC are advancing, most independent estimates place viable large-scale substitution three to ten years away. Beijing’s calculus may operate on a much shorter horizon. If the aim is to shape strategic conditions in the next few years – especially across a potential Taiwan contingency window – then even temporary supply disruptions or compliance-induced delays could have disproportionate effect. Rare-earth control is therefore a strategic time-management weapon, designed to slow the pace at which adversaries can mobilize industrially and militarily.

The Evolution of Beijing’s Rare-Earth Strategy

Beijing’s rare earths strategy emerged as a deliberate counterpart to U.S. semiconductor restrictions and is designed to offset U.S. technological chokeholds.

In 2010, Beijing first demonstrated its willingness to weaponize rare earths when, following the Senkaku/Diaoyu trawler incident, it held back rare earths bound for Japan at PRC ports (CRS, December 10, 2021). While analysts later debated the extent to which shipments were formally stopped, the effect over the ensuing decade was that Japan’s dependence on PRC exports of scandium, yttrium, cerium, lanthanum, ferrocerium, and metaldehyde fell from over 78 percent of total imports to under 40 percent (Vox EU/CEPR, July 19, 2023). The episode prompted Tokyo to diversify supply and alerted Beijing that threatened restrictions could achieve strategic outcomes even without an outright embargo.

For the following decade, the PRC relied mainly on quotas and environmental regulations to manage output, while Washington and its allies failed to rebuild processing capacity. But as the United States intensified semiconductor and manufacturing-equipment controls in 2022–2023, Beijing’s calculus changed. In October 2022, the Biden administration unveiled sweeping restrictions on chip exports, expanding the Foreign Direct Product rule to bar the PRC from obtaining advanced logic and memory semiconductors (CRS, September 19). Throughout 2023, additional rules targeted lithography, EDA software, and AI hardware, closing off Beijing’s path to cutting-edge fabrication.

Beijing’s answer was gradual but unmistakable: mirror-image constraints in the material domain. Beginning in mid-2023, the PRC started a rolling series of export restrictions on strategic inputs essential to semiconductors, batteries, and defense components: gallium, germanium, graphite, tungsten, and antimony (CSIS, April 14). Each measure was framed as a routine adjustment undertaken “to safeguard national security and interest” (为维护国家安全和利益). Collectively, however, they revealed a coherent design, intended to make Washington’s supply chain interdictions reciprocally costly.

In December 2023, the U.S. House Select Committee on Strategic Competition Between the United States and the Chinese Communist Party released a report titled Reset, Prevent, Build: A Strategy to Win America’s Economic Competition with the Chinese Communist Party. It argued that America’s dependence on Chinese rare-earth magnets represented a “critical vulnerability” and called for tax incentives to rebuild domestic production (Select Committee on the CCP, December 12, 2023). Beijing’s strategists may have read that report as further confirmation that the United States was preparing to delink. The following week, the PRC banned the export of technology to make rare-earth magnets, adding it to a preexisting ban on exporting rare-earth extraction and separation technologies in which the PRC held a significant lead (Reuters, December 21, 2023). Because alternative facilities were years from completion, the obvious intent of the bans was to delay or freeze Western capacity expansion.

By early 2024, Beijing had signaled it could slow the material basis of Western re-industrialization, just as Washington was slowing the PRC’s semiconductor advances. What remained was to formalize this counter-denial into law and embed it within the SOE system.

Building and Testing the Architecture of Leverage

The formal consolidation of the PRC’s rare-earth regime began in April 2025. This marked the transition from episodic retaliation to a coordinated, broadly institutionalized system of control.

On April 4, MOFCOM issued Announcement No. 18 (第18号 公布), placing seven medium-to-heavy rare-earth elements under immediate export-license control (MOFCOM, April 4). [1] The measure directly targeted the alloys and magnetic materials essential for electric vehicle (EV) motors, precision drones, and missile guidance systems, thereby reaching deep into the industrial foundations of both the green and defense sectors. This new licensing regime triggered an estimated ~70 percent collapse in magnet and processed exports, causing “real industrial disruptions” across global automotive and defense supply chains (East Asian Institute, NUS, September 12). The strategic significance of this episode was that MOFCOM’s statements had crossed the threshold from low-cost warnings to credible indices of intent.

Two weeks later, on April 16, SASAC director Zhang Yuzhuo (张玉卓) inspected China Minmetals (中國五礦), issuing what amounted to a national mobilization order. Zhang explicitly tied Minmetals’ mission to national resource security and industrial control. He instructed the conglomerate to “build complete industrial chains” (打造完整产业链) and “convert resources into materials, materials into products, and products into industries” (将资源变成材料、材料变成产品、产品形成产业) (SASAC, April 16). His insistence on “full-tier penetrating supervision” (全级次穿透式监管) tasked Minmetals officials with security oversight. This transformed the country’s largest mining SOE into an enforcement arm of the critical minerals regime.

By May 2025, the system had entered full implementation. A multi-ministry campaign, including MOFCOM, the Ministry of State Security (MSS), Customs, and MIIT, launched coordinated inspections in Changsha and Shenzhen to enforce “full-chain control” (全链条管控) (China Brief, May 23). At the same time, the Ministry of Natural Resources expanded domestic exploration to secure upstream reserves.

Beijing Prepares for Conflict, Promises Stability

By early summer 2025, the formal structure of Beijing’s revamped rare-earth control regime was in place; what followed was a series of administrative decisions and public statements meant to signal the credibility of that system. MOFCOM’s external posture, however, was defined by a veneer of low-cost reassurance, a pattern that would recur across multiple economic and security domains that year.

On June 7, MOFCOM released a carefully worded press Q&A responding to international concern over the April 4 export controls. The spokesperson repeated that rare earths are “dual-use” (军民两用属性) materials and that the measures were “consistent with international practice” (符合国际通行做法) (MOFCOM, June 7). But the statement also signaled new operational maturity: “China … has lawfully approved a certain number of compliant export applications,” they said, “and will continue to strengthen review of compliant cases” (中国 … 依法批准一定数量的合规申请，并将持续加强合规申请的审批工作).

The phrasing implied two facts at once. First, that the licensing apparatus was functioning, confirming that export approval had become a central gatekeeping mechanism. Second, that the system’s credibility derived precisely from its selectivity: Beijing could slow or accelerate approvals to calibrate pressure without overtly violating trade rules. To foreign audiences, the statement conveyed reassurance. Behind the scenes, however, shipment times lengthened, and magnet exporters reported repeated requests for supplementary documentation (Reuters, May 26; Reuters, June 5; CNBC, July 21).

The second phase of tightening came not through MOFCOM but via MIIT. In late September 2025, the ministry announced the introduction of a “total-volume control” (总量控制) and “traceability information” (追溯信息) system for rare-earth production (China Brief, September 25). The rules abolished provincial quotas and required all firms to submit output and transaction data to the new system, creating a national-level digital map of resource flows (Xinhua, August 2; MIIT, September 2025). The data feed now allows Beijing to monitor inventories and adjust export licensing in near real time, enabling an evolution from quota planning to continuous surveillance. For local producers, the change curtailed flexibility. For central regulators, it created a foundation for the next step: compression of regional autonomy and the alignment of all industrial activity with national security objectives.

The summer period demonstrated that Beijing’s new framework could inflict real friction on global supply chains while remaining legally defensible. Strict licensing enforcement meant slower customs clearance, higher compliance costs, and lost revenue for Chinese exporters—a price Beijing willingly paid to establish deterrent authority (Bloomberg, June 17; Reuters, October 14). The willingness to bear these costs made the signal believable. By late September, Beijing had achieved what SASAC’s Zhang Yuzhuo called in April a “complete industrial chain … targeting national strategic resources” (瞄准国家战略性资源，超前布局谋划，打造完整产业链). Rare-earth governance had become both a compliance regime and a deterrence mechanism; an apparatus capable of modulating global industrial tempo in response to geopolitical developments.

This administrative hardening set the stage for the October storm, when the full logic of Beijing’s strategy of reverse constrainment through material denial would be revealed in a sequence of sweeping extraterritorial controls and direct confrontation with the United States.

Strategic Equivalence: Unveiling the Reverse Constrainment System

By early October 2025, Beijing moved from calibrated enforcement to open confrontation. On October 9, the Ministry of Commerce issued two landmark directives, Announcements No. 61 and No. 62. These extended the PRC’s rare-earth controls beyond its borders and into the realm of extraterritorial jurisdiction. They amounted to a declaration that Beijing would now claim legal authority over any foreign-made product containing PRC-origin materials or derived from PRC rare earth technology.

Announcement No. 61 required foreign entities—“specific overseas exporters” (境外特定出口经营者)—to obtain export licenses before transferring or re-exporting any item containing 0.1 percent or more of Chinese-origin rare-earth content or produced using Chinese separation or metallurgical technology (MOFCOM, October 9). In effect, Beijing created a mirror of the U.S. Foreign Direct Product rule, extending PRC jurisdiction across global rare earths supply chains.

Announcement No. 62 imposed parallel controls on rare-earth technologies themselves: extraction, separation, refining, magnet manufacturing, and recycling. The rule covered not only material transfers but also intangible forms, such as data, drawings, simulation models, and design parameters. This means that knowledge transfer is now regulated as stringently as physical exports (MOFCOM, October 9).

In parallel, announcements No. 56 and No. 57 extended control to the equipment and raw materials that underpin rare-earth production itself. No. 56 restricted the export of centrifugal extraction units, intelligent precipitation systems, and high-temperature roasting kilns used in refining and separation (MOFCOM, October 9). No. 57 added oversight of key raw and auxiliary inputs for smelting and magnet fabrication (MOFCOM, October 9). Together, these rules close the technological and upstream gaps left by earlier regulations, ensuring that foreign firms could neither reproduce the PRC’s processing capacity abroad nor access the machinery needed to do so.

Together, these measures marked the first time the PRC had explicitly claimed authority over derivative foreign production, a clear signal that it viewed minerals—like data—as a security asset rather than a commodity (Hoover Institution, April 2023).

MOFCOM held a press briefing on the morning the announcements were released. The official explanation for the measures repeated the now-familiar phrasing that “rare earths are dual-use materials” and that “export control is consistent with international practice.” But in the Q&A, the ministry spokesperson introduced a decisive narrative shift. They claimed that foreign actors had transferred PRC-origin materials for military use, causing “major damage or potential threats to China’s national security and interests” (对中国国家安全和利益造成重大损害或潜在威胁) (MOFCOM, October 9). To Washington and allied defense industries, this conveyed a clear warning. Beijing now possesses an effective veto over the material inputs of Western defense production. Reporting from Caixin noted that, immediately after the October 9 announcements, PRC customs officials and MIIT offices began conducting additional pre-shipment verifications, effectively slowing exports even of non-restricted products (Caixin, October 10).

Three days later, on October 12, MOFCOM addressed both the new controls and the U.S. response. The tone was no longer defensive. Statements described the controls as a “normal act of improving China’s export-control system” (完善自身出口管制体系的正常行为). But they also explicitly identified the military relevance of rare earths, acknowledging that “medium and heavy rare earths have important applications in the military field” (中重稀土相关物项在军事领域有重要应用) (MOFCOM, October 12). In response to Washington’s proposed retaliatory measures (a new 100 percent tariff on PRC rare-earth exports and new software restrictions), MOFCOM’s statement threatened open confrontation: “We do not wish to fight, but we do not fear fighting” (我们不愿打，但也不怕打). The statement then accused the United States of “typical double standards” (双重标准), pointing out that the U.S. control list covered more than 3,000 items compared with the PRC’s 900, and that the United States had long used minimum-content rules down to zero percent. The implication was deliberate: the PRC had achieved systemic parity with U.S. export-control law and would henceforth apply it reciprocally.

Conclusion

By mid-October, the PRC had created what amounts to a fully articulated reverse constrainment strategy. Under this doctrine, Beijing seeks to slow Western industrial and defense mobilization just as Washington seeks to slow the PRC’s technological ascent. Through this system of material denial, Beijing now possesses the capacity to impose delay across sectors dependent on its rare-earth ecosystem: EVs, turbines, robotics, avionics, and advanced weapons platforms. Even temporary licensing delays can create months-long supply gaps in complex manufacturing chains. The world’s largest producer of rare earths has, in effect, declared that the material foundations of advanced industry are now part of its national security perimeter.

The October storm thus crystallized a new equilibrium of coercive interdependence. In this model, the United States controls information and computation while the PRC controls matter and materials. Competition now plays out at the level of the design of constraint systems themselves. Each seeks to shape the other’s industrial time horizon.

Looking ahead, the next stage will test how far Beijing can sustain and scale this system without triggering complete decoupling. Having asserted jurisdictional parity with the United States, the PRC is now likely to move from defensive restriction to selective activation, using licensing delays, sector-specific exemptions, and bilateral “supply assurances” as bargaining tools. The logical next step would be a modular sanctions architecture in which rare earths, graphite, and advanced alloys are deployed interchangeably to reward compliance or punish alignment with U.S. controls. Whether this evolves into a stable deterrent equilibrium or a rolling contest of escalation will depend on how quickly Western economies can reconstitute non-PRC processing capacity. It will also hinge on Beijing’s confidence in its ability to manage the economic costs of its own leverage.

Notes

[1] The seven elements included samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.