In Force

China's invisible rare earth wall: why suspended export controls do not mean available supply

The six-layer domestic regulatory architecture that constrains rare earth trade regardless of MOFCOM announcements

Sm Gd Tb Dy Lu Sc Y Ho Tm Eu Er Yb

Chinese rare earth sellers who refuse to quote holmium or describe thulium exports as requiring “complex procedures” are not exaggerating — they are responding rationally to a six-layer regulatory architecture that constrains trade regardless of whether formal export controls are active.

The landmark Rare Earth Management Regulations (State Council Order No. 785), effective October 1, 2024, created China’s first comprehensive statutory framework governing rare earths from mine to export, complete with traceability mandates, production quotas, and penalties reaching 5–10 times illegal gains plus criminal prosecution. Even when MOFCOM’s Announcement No. 57 export controls on holmium, thulium, europium, erbium, and ytterbium were suspended on November 7, 2025, the domestic regulatory apparatus remained fully operational.

The 2024 Rare Earth Management Regulations

State Council Order No. 785, adopted April 26, 2024, promulgated June 22, 2024, and effective October 1, 2024, is a 32-article administrative regulation that represents China’s first unified statutory framework for rare earth governance.1 Previously, rare earth policy relied on scattered ministerial notices and departmental guidelines with no binding penalty structure.

Article 30 explicitly names all 17 rare earth elements — lanthanum through lutetium plus scandium and yttrium — meaning holmium and thulium receive identical regulatory treatment as commercially dominant elements like neodymium and dysprosium. There is no carve-out for minor or less commercially significant elements.2

The most consequential provision is Article 8, which establishes a closed-list enterprise designation system. MIIT, jointly with relevant departments, determines which enterprises qualify for rare earth mining and smelting/separation and publicly announces them:

“Except for enterprises determined in accordance with [this Article], no other organization or individual may engage in rare earth mining or rare earth smelting and separation.”

This is not a licensing system where any qualified applicant can obtain a permit — it is a state-curated roster of approved operators, currently consisting of subsidiaries under just two mega state-owned groups.3

Article 14 mandates the rare earth product traceability information system (稀土产品追溯信息系统), requiring enterprises in mining, smelting, metal production, recycling, and export to truthfully record product flow information and upload it to a national platform. The system covers 407 product categories and requires monthly data uploads by the 10th of each month, creating a digital chain of custody that links domestic production data directly to export declarations.4

Penalty framework

Violation Penalty
Exceeding production quotas Confiscation + 5–10x illegal gains, or RMB 1–5M floor
Unauthorized smelting/separation Fines up to RMB 5M + licence revocation
Trading illegally sourced RE Fines up to RMB 2M + licence revocation
Traceability non-compliance RMB 50K–200K, escalating to RMB 1M + production suspension
Criminal offences Prosecution under Art. 29

All violations are recorded in the national credit information system, triggering social credit consequences.5

Production quotas and the state-owned duopoly

China’s MIIT has set annual rare earth production quotas since 2006, but the 2024 regulations elevated these from ministerial directives to binding administrative law.

In 2024, the national mining quota was 270,000 metric tons (REO equivalent) and the smelting/separation quota was 254,000 metric tons, representing roughly a doubling from 2019 levels. However, this growth was entirely concentrated in light rare earths. The heavy rare earth (ionic clay) mining quota has been frozen at approximately 19,150 metric tons for nearly six years, reflecting what Adamas Intelligence describes as “the scarcity of associated resources in China.”6

This stagnation matters enormously for holmium and thulium. Both are heavy rare earths extracted from ionic clay deposits in southern China. Research published in Journal of Industrial Ecology by Zhang et al. (2024) found that 80.7% of China’s thulium production from 2011 to 2020 originated from illegal mining, with cumulative illegal production reaching 1,506 tonnes.7

The duopoly

Through aggressive consolidation from 2021 to 2024, China reduced its “Big Six” state-owned rare earth groups to an effective duopoly:

Entity Role Quota share
China Northern Rare Earth Group Light REEs ~67% of light quota (188,650 t)
China Rare Earth Group Heavy REEs ~62–68% of heavy supply (81,350 t, incl. all 19,150 t heavy)

China Rare Earth Group was formally established December 23, 2021, by merging rare earth units of Minmetals, Chinalco, and China Southern Rare Earth, and subsequently absorbed Guangdong Rare Earth and Xiamen Tungsten’s quota allocations. Only these two entities receive quota allocations from MIIT.8

In a striking development, China’s 2025 rare earth quotas were issued without public announcement for the first time. Reuters reported in July 2025 that quotas were quietly distributed to companies with instructions not to disclose figures “for security reasons.” A Springer-published academic paper characterizes this as a new “Nondisclosure Era,” arguing that informational opacity itself functions as a coercive tool.9

Six regulatory layers form an interlocking compliance web

A Chinese rare earth seller attempting to export holmium or thulium — even with Announcement No. 57 suspended — must simultaneously satisfy requirements from six distinct regulatory layers, each administered by different agencies with independent enforcement authority.

Layer 1 — Production authorization (MIIT/MNR)

The seller’s upstream supplier must be a state-designated mining or smelting/separation enterprise on MIIT’s approved list. No non-designated entity may legally produce the material. Under the July 2025 Interim Measures for Total Quantity Control, enterprises can no longer self-nominate for quota allocation — MIIT and the Ministry of Natural Resources directly determine the eligible list.10

Layer 2 — State Council Regulations (Order 785)

The overarching framework regulation imposes obligations on every participant in the value chain. Article 13 makes it illegal to purchase, process, sell, or export illegally produced rare earth products. The seller bears liability for verifying the legality of their supply — a non-trivial obligation given that the majority of historical thulium supply was illegally produced.1

Layer 3 — Traceability system

All production, sales, and circulation data must be uploaded monthly to MIIT’s national traceability platform. The system creates a digital chain of custody covering 407 product categories from mine to export. Material that cannot be traced to authorized production within the system is effectively unsaleable.4

Layer 4 — Export licensing (MOFCOM)

While Announcement 57’s controls on Ho, Tm, Eu, Er, and Yb are suspended until November 10, 2026, the April 2025 controls under Announcement No. 18 remain fully in force for seven other medium/heavy REEs (Sm, Gd, Tb, Dy, Lu, Sc, Y). The export licensing bureaucracy is active and scrutinizing all rare earth shipments.11

Layer 5 — Customs enforcement (GAC)

Chinese customs operates a “dual-linkage” enforcement system with MOFCOM. Administrative enforcement cases surged from 91 in 2024 to 317 in 2025 — a 248% increase — with fines exceeding RMB 1 million imposed for the first time and a maximum single fine of RMB 6.34 million. In May 2025, China launched a special campaign against strategic mineral smuggling. Four criminal convictions were secured in 2025, with the principal offender in an antimony smuggling case receiving 12 years imprisonment.12

Layer 6 — End-user certification and tax compliance

Exporters must provide end-user and end-use declarations, disclose intermediate and ultimate destinations, and issue compliance notification letters to overseas recipients. The VAT system functions as a parallel enforcement mechanism — China eliminated all VAT export rebates on rare earth concentrates, imposing a 13% cost disadvantage on raw material exports.13

Why sellers treat suspended controls as active restrictions

The behaviour of Chinese sellers who refuse to quote holmium or describe thulium exports as “complex” reflects a calculated response to five converging factors:

1. The regulatory sandwich remains closed. Suspending Announcement 57 removed one layer from the six-layer compliance structure. The remaining five layers continue to impose genuine procedural friction. Cross-border compliance reforms that took effect October 1, 2025, imposed new real-name reporting requirements that caused logistics intermediaries to cease accepting shipments from smaller sellers entirely.14

2. A suspended law is a loaded weapon. Under Chinese administrative law, suspension halts enforcement while keeping the regulation legally intact. Beijing can reactivate Announcement 57 without drafting new policy. State media emphasized exports would remain “subject to laws and regulations” while authorities “study and refine” the rules.15

3. The April 2025 trauma conditioned the entire industry. When Announcement 18 took effect on April 4, 2025, exporters halted shipments overnight. Rare earth magnet exports to the US plummeted 93.3% year-on-year in May 2025. The European Parliament described the licensing process as “opaque, selective, and slow on purpose.” The gallium/germanium precedent reinforced the lesson: when controls on gallium were announced in July 2023, exports collapsed from 6,876 kg to 227 kg within three months — not because exports were banned, but because sellers froze.16

4. Deliberate regulatory ambiguity makes full compliance impossible. A 2021 Springer analysis of China’s Export Control Law observed that key terms like “national security” and “national interests” provide “substantial room for interpretation,” creating a “sword of Damocles” over sellers who cannot be certain that exporting holmium won’t later be recharacterized as violating some overlapping regulation.17

5. Physical supply constraints. Heavy rare earth production has been severely curtailed by environmental enforcement — in 2018, only 25% of the heavy REE production quota was actually utilized because mines were forcibly closed for environmental non-compliance. When a seller says “complex procedures,” they may partly mean “we don’t have allocated supply of this specific element and cannot guarantee sourcing it within the traceability system.”18

No comparable framework exists anywhere else

China’s rare earth regulatory architecture is globally unique in its comprehensiveness. No other jurisdiction regulates a single mineral group with top-to-bottom, production-to-export, domestic-to-extraterritorial controls.

Jurisdiction Approach Export controls?
China Production quotas + SOE duopoly + traceability + export licensing Yes, multi-layered
EU (CRM Act) Import diversification, capacity targets (10%/40%/25% by 2030) No
Australia Financial incentives (A$4B Critical Minerals Facility), stockpiling No
Japan (JOGMEC) Strategic stockpiling (60–180 days supply) No
US (EAR) Technology & manufactured goods controls Yes, but not raw materials

China has explicitly modeled its October 2025 export control architecture on US EAR concepts — adopting a Chinese version of the Foreign Direct Product Rule, a de minimis threshold (0.1% value for Chinese-origin rare earth content), a 50% ownership rule, and entity/watch lists. However, the critical difference is that the US system controls technology while China controls raw materials and processing technology — a fundamentally different strategic lever.19

The post-WTO regulatory fortress

The WTO ruling in DS431/432/433 (August 7, 2014) struck down China’s export quotas because they lacked “even-handedness” — restricting exports without corresponding domestic restrictions.20 The 2024 regulations apply production quotas equally to domestic and export-destined output, invoke resource conservation as domestic policy objectives, and frame the entire apparatus as internal resource management. With the WTO Appellate Body paralyzed since December 2019, practical enforcement of any challenge is impossible regardless.

China’s response to the WTO defeat was architectural redesign:

  • Production quotas applied to all output, not just exports (defensible under GATT Article XX(g))
  • Industry consolidation reducing hundreds of producers to two SOEs
  • Environmental enforcement selectively closing non-compliant mines
  • Resource tax reformed to 7–12% for light, 20% for heavy rare earths (ad valorem)
  • VAT manipulation eliminating export rebates for raw materials
  • Traceability creating mine-to-export digital chain of custody

As one Baker Institute analysis concluded, China’s bureaus now use “unconventional export controls” including VAT rebate manipulation, SOE consolidation, and production quotas that “arguably amount to trade manipulation” but fall outside traditional WTO disciplines.21

Conclusion

“Suspended export controls” does not mean “freely available.” The domestic apparatus — state-enterprise gatekeeping, frozen heavy REE quotas, mandatory traceability, classified 2025 production allocations, intensified customs enforcement, and criminal liability for supply chain violations — creates a compliance environment where overcaution is the only rational commercial strategy.

The shift from controlling exports to controlling production represents a fundamentally different — and far more effective — approach to resource leverage. For any buyer attempting to source heavy rare earths from China, the relevant question is not whether export controls are active but whether legitimate, quota-compliant, traceability-registered material exists in sufficient quantity to meet demand.

References

  1. State Council Order No. 785, Rare Earth Management Regulations (稀土管理条例), promulgated 22 Jun 2024, effective 1 Oct 2024. 32 articles covering mining, smelting, separation, circulation, and import/export. ↩ ↩2

  2. Art. 30 of Order No. 785; International Energy Agency, “Rare Earths and Clean Energy,” 2024; Faegre Drinker, “China’s Rare Earth Management Regulations,” Oct 2024. ↩

  3. Art. 8 of Order No. 785. The two designated groups are China Northern Rare Earth Group and China Rare Earth Group. See BGR Group, “Rare Earth Governance in China,” 2025; Emerging Materials analysis, 2025. ↩

  4. Art. 14 of Order No. 785; MIIT implementing measures (Aug 2025) specify monthly uploads by the 10th covering 407 product categories. Jamestown Foundation, “China’s Rare Earth Traceability System,” 2025. ↩ ↩2

  5. Art. 29 of Order No. 785; penalty schedule derived from Arts. 23–28. Global Times, “Rare Earth Regulations Penalty Structure,” 2024; Emerging Materials, “Compliance Guide,” 2025. ↩

  6. MIIT quota data: Mining Technology, “China’s Rare Earth Quotas 2024,” 2024; China Briefing, “Annual RE Production Quotas,” 2024. Heavy REE freeze: Adamas Intelligence estimates cited in multiple industry sources. ↩

  7. Zhang et al., “Illegal rare earth mining in China: quantifying flows of thulium, holmium, and other ionic clay REEs,” Journal of Industrial Ecology, 2024. Cumulative illegal Tm production 2011–2020: 1,506 tonnes (80.7% of total). ↩

  8. China Rare Earth Group formation: Cambridge Core, Dec 2021; Fastmarkets quota allocation data; Rareearthexchanges consolidation timeline. Baker Institute, “China’s Strategic Metals Policy,” 2024. ↩

  9. MINING.COM, “China issues 2025 rare earth quotas without public announcement,” Jul 2025; Investing.com, “Companies told not to disclose for security reasons”; Springer, “Informational Statecraft in China’s Rare Earth Policy,” 2025. ↩

  10. MIIT/MNR July 2025 Interim Measures for Total Quantity Control; Global Security analysis; RSIS Commentary, “China’s Rare Earth Governance Reform,” 2025. ↩

  11. MOFCOM/GAC Announcement No. 18 of 2025 (7 REEs); Pillsbury Winthrop Shaw Pittman, “China’s Export Control Landscape,” 2025; CIRS Group compliance analysis. ↩

  12. Customs enforcement data: Lexology, “China Export Control Enforcement Trends 2025”; Clark Hill, “Dual-linkage enforcement system”; South China Morning Post, “Anti-smuggling campaign,” May 2025. Criminal convictions: 4 in 2025, max sentence 12 years (antimony case). ↩

  13. VAT structure: Rareearthexchanges, “China’s VAT Export Rebate Elimination,” 2024; Avalara tax compliance analysis; Clark Hill end-user certification requirements; SFA Oxford, “End-use verification obligations.” ↩

  14. Lexchina, “Cross-border compliance reforms effective October 1, 2025”; real-name reporting requirements affecting logistics intermediaries. ↩

  15. Clark Hill, “Suspension language grants wide latitude”; Rare Earth Exchanges, “Authorities to ‘study and refine’ rules”; Pillsbury, “Reimposition risk analysis,” 2025; FDD, “Snap-back risk for RE controls.” ↩

  16. CSDS, “Announcement 18 market impact”; e2open, “93.3% YoY decline in RE magnet exports to US, May 2025”; European Parliament Think Tank, “Licensing process ‘opaque, selective, and slow on purpose’”; USITC gallium trade data (6,876 kg to 227 kg collapse in Q3–Q4 2023). ↩

  17. Springer, “Analysis of China’s Export Control Law: The ‘Sword of Damocles’ Effect,” 2021. Key terms “national security” and “national interests” provide “substantial room for interpretation.” ↩

  18. Wikipedia/industry sources, “2018 heavy REE quota utilization at 25%”; Chinabankingnews, “Environmental enforcement and mine closures”; Rare Earth Exchanges, “Physical supply constraints for Ho/Tm.” ↩

  19. CMS Lawnow, “China’s Foreign Direct Product Rule analogue”; Geopolitechs, “De minimis threshold analysis (0.1%)”; White & Case, “50% ownership rule”; Center for Strategic and International Studies, “US EAR vs China export controls comparison,” 2025. ↩

  20. WTO DS431/432/433, panel report Mar 2014, Appellate Body Aug 2014. USTR, “WTO Ruling on China Rare Earth Export Restrictions”; ASIL, “Legal analysis of even-handedness requirement.” ↩

  21. Baker Institute, Rice University, “China’s Unconventional Export Controls,” 2025; Rare Earth Exchanges, “Post-WTO architectural redesign”; Oxford Institute for Energy Studies, “Resource tax reform: 7–12% light, 20% heavy rare earths.” ↩