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The Chinese government is making it harder for foreign companies to buy critical minerals, especially chip manufacturers (The New York Times, subscription). China is by far the dominant producer of these minerals, and though the U.S. and its allies are working to develop sources elsewhere, these efforts are still in their early stages.

New scrutiny: “As of Oct. 1, exporters must provide [Chinese] authorities with detailed, step-by-step tracing [data on] how shipments of rare earth metals are used in Western supply chains.”

• Meanwhile, the Chinese government is also assuming a bigger ownership stake in the country’s domestic mining, processing and refining industry.
• In fact, “the last two foreign-owned rare earth refineries in China are being acquired by one of the three state-owned companies that already run the other refineries in China.”

Chip troubles: Crucially, China is also restricting exports of key materials used in semiconductor manufacturing and national defense applications, including antimony (as of this past September) and gallium and germanium (as of last year).

Getting secretive: In an alarming development, China’s national security apparatus has “tightened the flow of information” regarding rare earths mining and refining, deeming them state secrets.

• “Last month, the Ministry of State Security announced that two managers in the rare earths industry had been sentenced to 11 years in prison for leaking information to foreigners.”

Why it matters: Rare earths and other critical minerals are essential to many modern products, from wind turbines to electric vehicles to weapons systems to the all-important semiconductors.

• Here’s just one example of China’s monopoly power over these materials. Manufacturers of advanced chips have recently switched to using a rare earth called dysprosium for the capacitors in their chips. Chinese refineries produce 99.9% of all dysprosium, largely at one refinery near Shanghai.
• That refinery is one of the only two still owned by foreign firms, but not for long; the Canadian owners, Neo Performance Materials, will sell 86% of it to a Chinese firm by the end of this year. The Chinese firm’s largest shareholder is the country’s Ministry of Land Resources.

Finding alternatives: A few companies are trying to increase or begin production of dysprosium in France, Malaysia and even Texas, but the task is daunting: the production process for the ultrapure dysprosium used in chips is extraordinarily complex.

The education angle: Another source of difficulty is a lack of trained personnel and adequate investment in rare earths research outside of China.

• “China has 39 universities with programs to train engineers and researchers for the rare earths industry. Universities in the United States and Europe have mostly offered only occasional courses,” the Times pointed out.

A bit of optimism: The U.S. and its allies are working together to find other sources of critical minerals and reduce their reliance on China. Alongside the Biden administration’s investment in domestic lithium mining (see the previous story), it has made agreements with Japan, Australia and India to support critical minerals projects. 

The last word: “It’s vital that we diversify our domestic sources of mineral mining—but it’s perhaps even more important that we diversify our processing and refining here in the U.S.,” said NAM Vice President of Domestic Policy Chris Phalen.

• “The NAM has been a leading voice in highlighting this energy and national security imperative and in advocating a permitting system that enables development instead of strangling it.”