China Export Controls: Beijing Tightens Restrictions on Japanese Defense Firms

China Export Controls: China has expanded its export restrictions on Japanese defence-related organisations, adding dozens of entities to its export control and watch lists in a move that further heightens tensions between Beijing and Tokyo.

China’s Ministry of Commerce announced that it had placed 20 organisations, including the National Institute for Defense Studies and research centres for land, naval and air systems, on its export control list. The latest measures also include several units of Mitsubishi Electric and Mitsubishi Heavy Industries.

Under the new rules, Chinese exporters, as well as foreign organisations and individuals, are prohibited from supplying Chinese-origin dual-use goods to the listed entities. The ministry also ordered any ongoing transactions involving those organisations to cease immediately.

In a separate measure, Beijing added another 20 organisations to a watch list requiring stricter export licensing reviews. The list includes Mitsui E&S, drone manufacturer Terra Drone Corp., nuclear fuel processing companies and several units of OKI Electric Industry.

The Commerce Ministry said exports involving Japanese military users or activities that could strengthen Japan’s defence capabilities would not receive approval. It also announced tighter end-user and end-use reviews for entities placed on the watch list.

The latest restrictions build on measures introduced earlier this year. In January, China banned exports of dual-use goods to Japan, including rare earth elements, permanent magnets and other critical materials used in defence technologies. Additional Japanese companies were added to export control and watch lists in February.

Beijing has increased pressure on Tokyo following remarks by Japanese Prime Minister Sanae Takaichi in November, suggesting that a potential Chinese attack on Taiwan could prompt a military response from Japan.

A spokesperson for China’s Ministry of Commerce accused Japan of accelerating what Beijing described as “new-style militarism,” including deploying offensive weapons and conducting missile activities overseas. The ministry urged Tokyo to reverse its current policies while insisting that the restrictions would not affect normal trade and that law-abiding Japanese businesses had no reason for concern.

Shares of Mitsubishi Electric and Howa Machinery fell following the announcement, while Mitsubishi Heavy Industries and Terra Drone Corp. posted gains.

Analysts say China is increasingly using its dominance in critical mineral supply chains as a strategic tool to influence geopolitical behaviour without direct military action. They note that countries supporting Taiwan remain particularly vulnerable to such measures.

Japan has worked to reduce its dependence on Chinese rare earth supplies since 2010 by investing in domestic refining and processing. However, it continues to rely heavily on China and Vietnam for key supply chain materials.

According to estimates by economist Koki Akimoto of the Daiwa Institute of Research, a one-year disruption in Chinese rare earth exports could reduce Japan’s real gross domestic product by approximately 1.3%, equivalent to around 7 trillion yen (US$43.3 billion).