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China's Resource and Tech Dominance, Europe's Response: A Deep Dive into Rare Earth Regulations and the Nexperia Case

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China's Resource and Tech Dominance, Europe's Response: A Deep Dive into Rare Earth Regulations and the Nexperia Case

This article is an automatically translated version of the original Japanese article. Please refer to the Japanese version for the most accurate information.

Research Focus: Trends in China's Rare Earth Export Controls, Nexperia, and the Fourth Plenary Session (Link)

Overview

This report analyzes how concerns regarding China's rare earth export controls and the Nexperia acquisition, highlighted in the 2020 MERICS report, have intensified in recent years. China's growing dominance over strategically important minerals and advanced technologies significantly impacts global supply chains, leading Western nations, in particular, to accelerate the strengthening of Foreign Direct Investment (FDI) screening and diversification of supply chains to protect economic security and technological sovereignty.

Key Points

1. China's Strategic Strengthening of Rare Earth Export Controls and Market Impact

China has introduced export controls on several critical minerals, including rare earths, and related technologies multiple times in 2024 and 2025. These measures have caused disruptions to global supply chains, particularly affecting strategic sectors such as defense, semiconductors, electric vehicles (EVs), and renewable energy, triggering price surges for specific rare earths.

2. Dutch Government Intervention in Nexperia and Geopolitical Tensions

In October 2025, the Dutch government took the unusual step of seizing control of the management of Nexperia, a semiconductor manufacturer under China's Wingtech Technology. This intervention was based on concerns about Europe's economic security, technological sovereignty, and the stability of semiconductor supply. In response, Wingtech is preparing to seek international arbitration, making this a symbolic case of geopolitical conflict over semiconductors.

3. Strengthening of Foreign Direct Investment Screening in Europe

The Nexperia case is linked to the European Union's (EU) move to strengthen its Foreign Direct Investment (FDI) screening mechanisms. The EU is mandating the screening of foreign investment in sensitive sectors such as defense, semiconductors, and critical raw materials, especially from China, and is introducing a harmonized framework to enhance overall economic security across member states.

Background and Context

The 2020 MERICS brief sounded the alarm about the potential for China to intensify rare earth export controls and expand its influence through investments in key European technology companies like Nexperia. These developments are rooted in the historical context of China positioning rare earths as strategic resources, as Deng Xiaoping stated in 1992, "The Middle East has oil, but China has rare earths." The Fourth Plenary Session of the 19th Central Committee of the Communist Party of China (Fourth Plenum) was mentioned in the 2020 MERICS report as a context shaping China's long-term economic and technological strategies. Today's developments demonstrate how these strategies have materialized as concrete policy measures, profoundly impacting international supply chains and geopolitics.

Detailed Analysis

China's Rare Earth Strategy

China accounts for approximately 60% of global rare earth production (2024) and holds approximately 91% dominance in the separation and refining stages. This dominance enables China to leverage rare earths as "extraordinary leverage" in trade negotiations.

Evolution and Impact of Export Controls:

  • In December 2024, exports of critical minerals such as gallium, germanium, and antimony were banned.
  • In April 2025, export license requirements were introduced for seven heavy rare earth elements, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, as well as magnets.
  • On October 9, 2025, further export controls were announced on five additional rare earth elements and products containing Chinese materials or manufactured overseas using Chinese technology.
  • However, as part of a trade agreement with the United States, this latest regulation (announced on October 9) was suspended for one year until November 10, 2026. The April 2025 regulations remain in effect.
  • These regulations have triggered price surges as high as 40% in the dysprosium and terbium markets, affecting the production of high-performance permanent magnets essential for EVs and defense systems.
  • China's total rare earth exports in 2025 reached 62,585 tons, a 12.9% increase year-on-year, the highest since 2014. However, this resulted from increased exports primarily of low-margin light rare earths, not high-value heavy rare earths or magnets, indicating China's focus on strategic leverage.
  • In January 2026, China reportedly suspended rare earth and rare earth magnet exports to Japanese companies in retaliation for Japan's potential use of military force in a crisis over Taiwan.

Environmental Impact:
Rare earth mining in China has caused severe environmental damage over many years. Due to the low concentration of rare earth elements, large quantities of chemicals are used in mining and refining, causing soil and water pollution, ecosystem destruction, and health problems for local residents. While the Chinese government has strengthened environmental regulations and taken measures such as halting illegal mining, its restoration is said to require significant time and expense.

Nexperia and European Technological Sovereignty

Nexperia is a semiconductor manufacturer headquartered in Nijmegen, Netherlands, that manufactures discrete components, MOSFETs, and analog & logic ICs for the automotive, consumer electronics, communications, and industrial markets. It was acquired by China's Wingtech Technology in 2018 and became a wholly-owned subsidiary in 2021.

Dutch Government Intervention:
In October 2025, the Dutch government invoked the "Availability of Goods Act" and intervened in Nexperia's management. This was a result of a combination of "justifiable reasons to doubt sound management" under the leadership of then-CEO Zhang Xuezheng and concerns regarding the availability of semiconductor products for Europe. The United States had already expressed concerns in June 2025 about Nexperia's CEO being a Chinese national, warning that Nexperia could fall afoul of U.S. export controls. Indeed, Wingtech had been added to the U.S. "Entity List" the previous year, and Nexperia subsequently faced its impact.

Wingtech's Backlash and China's Retaliation:
Wingtech criticized the Dutch government's intervention as "excessive intervention driven by geopolitical prejudice" and is preparing to pursue international arbitration, seeking up to $8 billion in damages. In response, China's Ministry of Commerce imposed retaliatory measures prohibiting the export of certain finished parts and sub-assemblies manufactured in China by Nexperia China and its subcontractors. This could lead to supply chain disruptions, particularly for the German automotive manufacturing industry.

Strengthening of FDI Screening in Europe

The EU is strengthening FDI screening amidst increasing investment from China, particularly in technology-intensive industries. In December 2025, the Council and Parliament reached an agreement to mandate the screening of foreign investment in sensitive sectors such as defense, semiconductors, AI, and critical raw materials, and to introduce more harmonized procedures. This move is part of the EU's "de-risking" policy, aimed at managing risks associated with economic and technological engagement with China.

Western Nations' Efforts Towards Supply Chain Diversification

To counter China's dominance over critical minerals, Western nations such as the United States, Europe, and Japan are actively working to diversify supply chains and strengthen domestic production capabilities. These efforts include a Memorandum of Understanding on critical minerals with Norway (US, 2024), the G7 Action Plan, the G7 Alliance, and a framework agreement on mining and processing with Japan (2025). Furthermore, projects aiming to build complete value chains and Offtake Agreements are increasing in Australia and North America.

Summary

  • China's Strategic Resource Dominance: China maintains overwhelming market dominance in critical minerals, including rare earths, and their processing technologies, leveraging this as a geopolitical tool.
  • Normalization and Impact of Export Controls: China's export controls introduce constant uncertainty into global supply chains, causing increased costs and supply insecurity, particularly for strategic industries like semiconductors and clean energy.
  • Europe's Defense of Technological Sovereignty: The Dutch government's intervention in Nexperia is an expression of Europe's proactive stance to defend its technological sovereignty and economic security, marking a new phase in response to increasing investment pressure from China.
  • Strengthening of FDI Screening: The EU is reinforcing its screening mechanisms for foreign direct investment in critical sectors, aiming to secure regional economic security by adopting a broader and more unified approach.
  • Supply Chain Restructuring: Western nations are accelerating the construction of more resilient supply chains through securing alternative sources, building domestic production capabilities, and strengthening international cooperation to reduce dependence on China.

References

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