China's Strategic Rare Earth Export Controls: Impact on Global Supply Chains and India's Mineral Independence

China has once again demonstrated its geopolitical assertiveness by expanding export restrictions on rare-earth elements (REE). Following previous controls in April 2025 and the 2023 licensing regime for graphite, gallium, and germanium, the October 2025 restrictions now extend beyond raw materials to products containing rare-earth magnets with merely 0.1% Chinese-origin content or those utilizing Chinese technological expertise.

This marks China's first implementation of the foreign direct product rule (FDPR), requiring foreign companies to seek approval from China's Ministry of Commerce before exporting magnets or semiconductor materials containing Chinese REEs or produced using Chinese technologies. This technology-denial strategy, controlling essential materials for green innovation, threatens sovereignty across multiple dimensions and has far-reaching consequences for numerous countries.

China's dominance over critical mineral supply chains represents decades of strategic planning that has systematically prevented similar development in other nations, creating ripple effects across sectors and impacting future growth trajectories, innovation potential, and national security concerns.

Currently, China holds 34% of global REE reserves, controls 51% of global mining operations, and dominates 76% of global refining capacity. Of the 17 REEs on the periodic table, China has already imposed restrictions on 12. These controlled elements - including Yttrium, Dysprosium, Gadolinium, and Samarium - particularly affect India's defense, electronics, and manufacturing sectors.

From December 2025, the new regulations will effectively block companies with connections to non-Chinese military entities, including those supplying or collaborating with Indian defense organizations, from obtaining export licenses. The Chinese Ministry of Commerce has explicitly stated that requests to use rare earths for military applications will be automatically rejected.

For civilian sectors, China has indicated willingness to consider licensing requests through multilateral and bilateral channels, provided the end-use has no defense applications. Earlier in June 2025, China mandated invasive end-use disclosures from private companies, including customer information, production videos, and technical processes - actions global experts characterized as industrial espionage through supply disruption threats.

While companies and countries largely complied, numerous applications were rejected, causing significant manufacturing losses. India experienced a modest decline in vehicle manufacturing, but electric vehicle production was severely impacted. Even when applications were eventually approved, India faced substantial delays reflecting geopolitical tensions with China.

Historical precedent suggests these October restrictions will follow similar patterns. Despite recent diplomatic warming with Beijing, India must remain vigilant and accelerate import diversification efforts. This situation may serve as the catalyst India needs to secure its critical mineral independence.

Chinese officials have justified expanding control over usage and technology transfer by citing increasing energy transition demands. After highlighting REEs' dual-nature and their importance in energy transition in Announcement 61, China's Ministry of Commerce simultaneously announced export licensing requirements for lithium batteries and artificial graphite anode materials, reinforcing Beijing's strategy of leveraging natural resources for techno-economic statecraft. These measures deliberately alter the pace and direction of global energy and industrial transitions.

Previously, China implemented export quotas on REEs, tungsten, and molybdenum, which were successfully challenged at the WTO by the United States, European Union, and Japan in 2014. While China eliminated these quotas, it has since employed alternative policy tools through duties, licensing requirements, and regulations under national security pretexts, which are permissible under WTO conventions.

India currently imports 90% of its neodymium magnets from China, with import volumes quadrupling between 2021-2024. Research analyzing trade data indicates attempts to diversify beyond China have been limited in both volume and price sustainability. Although India possesses REE-bearing monazite sands and entities like IREL engaged in upstream separation, the lack of downstream magnet-manufacturing infrastructure remains a critical deficiency. This highlights India's outsourcing of value addition to foreign players vulnerable to geopolitical volatility, underscoring urgent needs for domestic production, supply chain diversification, and strategic partnerships.

India faces a unique challenge as energy transition coincides with economic growth. Geopolitical tensions and geo-economic tools threaten mineral sovereignty, which can be addressed through value-driven global partnerships and security-focused stockpiling agreements. While India may remain import-dependent near-term as domestic exploration increases, it can pursue outward-looking development-cooperation models of mineral diplomacy, partnering with resource-rich countries for mutual benefit.

An Aatmanirbhar Bharat (self-reliant India) progressing toward Viksit Bharat (developed India) must focus on internal sourcing, servicing, and self-sustainability for the long term. While public sector undertakings currently dominate India's critical mineral space, expanding private sector engagement would allow startups with greater risk appetite to participate in exploration. This approach helps hedge against unpredictable geopolitical actions - with sudden restrictions, domestically generated stockpiles can provide sufficiency without compromising broader decarbonization goals.

The Government of India's recently proposed scheme to establish a homegrown rare-earth permanent magnet manufacturing ecosystem represents a positive step forward. With India's REE demand projected to grow approximately 105% by 2030, the proposed facility aims to support about 6,000 tonnes annually, sufficient to meet current demand. Multiple auctions and preliminary discussions with new partner countries demonstrate India's determination to achieve mineral independence, refusing to yield to artificial supply constraints while signaling the nation's resilience and forward-looking leadership.

China's dominant position in the rare earth supply chain and broader critical minerals network raises serious concerns for major Western powers like the USA and developing economies like India. To assert sovereignty over technological expertise, manufacturing ecosystems, and clean energy growth, India must view this moment as a strategic opportunity to accelerate self-reliance, diversify mineral partnerships, and invest in indigenous innovation throughout the entire critical minerals value chain.

(Meheli Roy Choudhury is a Research Consultant at Chintan Research Foundation. Views are personal)

Disclaimer: These are the personal opinions of the author