Rare Earths Under China’s Grip: European Businesses Face Heavy Loss Risks

The European Chamber of Commerce in China (ECCC) has warned that Beijing is still restricting foreign companies’ access to rare earths — a group of critical minerals essential for high-tech manufacturing.

According to the chamber, at least one member company has already lost “millions of euros” due to the lack of a stable supply. While the ECCC did not reveal the company’s name, it emphasized that many others continue to face uncertainty because of an inconsistent licensing process.

Rare earths play a vital role in producing electric vehicles, semiconductors, and electronics. In 2024, China accounted for more than 69% of global rare earth mine production and held nearly half of the world’s reserves, according to the U.S. Geological Survey.

Stricter Export Rules, Rising Supply Chain Risks

China has long leveraged its dominance in rare earths as a bargaining chip in trade negotiations with the U.S. and other partners. Since late last year, Beijing has tightened export restrictions, demanding proof that shipments would not be used for military purposes. Following a mid-May trade truce with Washington, China began issuing single-use export licenses.

Some companies, such as German automaker Volkswagen, reported that their supply chain remains stable thanks to close cooperation with suppliers. However, the ECCC noted that since August, license approvals have slowed, heightening uncertainty for businesses.

Europe’s Dependence on Chinese Rare Earths

Nearly 50% of the European Union’s rare earth imports came from China last year, followed by Russia and Malaysia. Growing restrictions have sparked concerns about shortages in the third quarter of this year, after several rounds of supply disruptions earlier in 2024.

The issue comes at a time when foreign investor confidence in China has already weakened since the Covid-19 pandemic, due to supply chain disruptions, a sluggish domestic economy, a real estate downturn, and industrial overcapacity.

A survey by the American Chamber of Commerce in Shanghai found that nearly half of U.S. companies had redirected planned investments from China to Southeast Asia — the highest proportion on record.

European Businesses Await China’s Next Five-Year Plan

The ECCC said it will meet with European Union policymakers in Brussels to update them on the situation, while urging Beijing to address structural issues such as overproduction and to provide more opportunities for the private sector in industries dominated by state-owned enterprises.

ECCC President Jens Eskelund noted that recent meetings with China’s Ministry of Commerce have focused heavily on access to rare earths.

All eyes are now on China’s leadership meeting scheduled for October, where officials will draft the country’s 2026–2030 development plan. With EU-China trade reaching €732 billion in 2024, any new policy direction from Beijing could have sweeping implications for European companies.

“Many of today’s challenges stem from earlier policy choices. That’s why these five-year plans matter — they set the course for the future,” Eskelund stressed.

FAQ – Frequently Asked Questions

1. What are rare earths and why are they important?
Rare earths are a group of 17 chemical elements essential for producing electric vehicles, wind turbines, smartphones, and semiconductors. They are often described as the “backbone” of modern technology.

2. Why does China dominate the rare earth market?
China controls more than 69% of global rare earth mining output and holds nearly half of the world’s reserves. This dominant position gives Beijing significant leverage in international trade.

3. How are European businesses affected?
Some European companies have already reported losses of millions of euros due to unstable access to rare earths. The lack of transparency in China’s export license process adds to the supply chain risks.

4. What steps is the European Union taking to reduce reliance on China?
The EU is investing in local mining projects, seeking alternative suppliers from countries such as Australia, the U.S., and Africa, and promoting recycling of rare earths from used electronic devices.

5. What is the outlook for the rare earth market?
The global rare earth market is expected to remain volatile, as China prepares to unveil its next Five-Year Plan. Policy directions from Beijing will likely influence global supply, prices, and investment decisions.