Trends and Implications of China’s Trade Regulations: Strengthening of Export Control of Rare Earths, Amendment of Foreign Trade Act, Regulation Against Japan

In response to various measures taken by the US to protect its domestic markets and companies, China continues to strengthen its trade regulations by tightening controls on rare earth exports and expanding its authority to impose sanctions through amendments to the Foreign Trade Act.

In October 2025, China’s Ministry of Commerce announced its plan to expand the scope of export controls on core minerals such as rare earths and to apply them extraterritorially under the Export Control Act and the Regulations on the Control of Dual-Use Goods. Although implementation has been postponed until November 2026, if the plan proceeds as announced, it will impact many Korean companies, as the scope of items subject to export licensing will be expanded and extraterritorial application will be enforced.

In addition, in December 2025, China announced a proposed amendment to the Foreign Trade Act (the “Proposed Amendment”) that would establish a legal basis for integrated and strengthened sanctions authority encompassing existing export controls, sanctions, and trade regulations. Further, on January 6, 2026, China announced measures to tighten export controls on dual-use items to Japan (the “Export Control Measures”). The Proposed Amendment and the Export Control Measures are expected to have a significant impact on China-related businesses as they signal potentially proactive use of sanctions on exports.

Measures to Strengthen Export Controls on Rare Earths in China

In April and July 2025, China announced and implemented rare earth export control measures, and had already been operating an export license system that directly controlled the export of raw materials and technology transfers related to seven rare earth elements. However, through additional measures in October 2025, China abolished the export quota system, which had been operated in parallel with the existing export license system, and included 12 types of rare earth elements and ultra-hard materials, such as synthetic diamonds, to the list of exports requiring licenses. Further, China expanded the scope of regional application to include cases where products produced outside of China are exported to third countries, thereby significantly strengthening export regulations on core minerals such as rare earths.

The key details are described below. In the event of a violation, administrative fines, inclusion on a list of wrongdoers, and criminal penalties may be imposed:

Expansion of Items Subject to Export Licensing (Notification No. 55~58): The scope of rare earth elements requiring export licenses has been expanded from 7 to 12, and ultra-hard materials, such as synthetic diamonds, have also been added to the list of items requiring an export license.
Extraterritorial application and controls on overseas technology (Notification Nos. 61 and 62): Re-export of products manufactured outside of China (No. 61) and the provision of overseas technology (No. 62) are subject to control. This is intended to prevent foreign companies or governments that are prohibited from exporting rare earths or related technologies from circumventing export control measures. Specifically, foreign organizations and individuals must obtain permission from the Chinese Ministry of Commerce for (i) re-export of raw materials for rare earths originating from China (13 items); (ii) export of a product manufactured overseas containing the raw materials above at 0.1% or more of t the product’s total value; and (iii) export of products manufactured overseas using rare earth-related technology of Chinese origin.

Proposed Amendment to Foreign Trade Act

On December 27, 2025, the Standing Committee of the National People’s Congress of China passed the Proposed Amendment, taking effect on March 1, 2026. The Amendment greatly expands the legal basis and authority for the Chinese government to impose sanctions on foreign governments, companies, and individuals, and significantly increases the level of such sanctions.

The key points are as follows:

Codification of Authority to Take Countermeasures against Foreign Countries or Territories that Impose Discriminatory Prohibitions or Restrictions against China

Article 10 provides that if another country or territory imposes discriminatory trade restrictions against China, the Chinese government may take appropriate countermeasures against such country or territory. Article 51 provides that if a country that has entered into a trade agreement or treaty with China infringes on China’s rights and the dispute resolution procedures under the agreement fail to work, thereby harming China’s interests, the Chinese government is authorized to directly take countermeasures.

Strengthening Trade Sanctions and Criminal Penalties Against Foreign Individuals and Companies That Infringe on Interests of China and Chinese Companies, Interfere with Chinese Transactions, or Take Discriminatory Measures Against China-related Transactions

China may impose prohibitions or restrictions on imports, exports, and related activities if a foreign individual or organization (i) threatens “sovereignty, security, and development interests” of China, or (ii) seriously undermines the legitimate rights and interests of Chinese individuals or organizations by interfering with normal transactions or taking discriminatory measures. In addition, acts by third parties to assist in the evasion of China’s restrictive measures are also prohibited, and the prohibited acts in this case include “agency, transportation, delivery, customs clearance declaration, warehousing, or third-party transaction platform services” (Article 76).

If prohibitory or restrictive measures are imposed on import and export, etc., the customs clearance of cargo through the Chinese customs office will be suspended, foreign trade transactions—such as settlement and sales—through Chinese financial institutions will be prohibited, and assisting parties will also be subject to administrative sanctions (e.g., corrective orders, confiscation of income, etc.) and prohibition of trade activities in the Chinese market for one to five years, or criminal punishment (Article 76).

China’s Measures to Control Exports of Dual-Use Goods to Japan

On January 6, 2026, China’s Ministry of Commerce announced export control measures targeting Japan under the Export Control Act of the People’s Republic of China and other relevant laws and regulations. The key details of these export control measures are as follows:

The Amendment immediately prohibits “export of all dual-use (civil and military) goods that may contribute to the enhancement of Japan’s military power,” including exports to Japanese military end users or for military end uses.
It also states that any organization or individual in any country or territory that violates the above provision by reselling or providing dual-use items of Chinese origin to any organization or individual in Japan will be subject to liability.

Although the above measures did not specify the items or quantities of “dual-use goods,” the 2026 list of import/export controls for dual-use goods announced by China on December 31, 2025 includes raw materials such as certain rare earths, gallium, germanium, and graphite; electronic devices such as semiconductors and integrated circuits; and precision machinery such as electronic parts, medical devices, and optical equipment.

China's Ministry of Commerce announced that under these measures, it will hold companies legally liable for transferring or providing “dual-use goods originating from the People’s Republic of China” to Japanese organizations or individuals, regardless of country or region. Therefore, if a Korean company imports Chinese-made regulated goods and re-exports them to a Japanese company, it risks exposure to secondary sanctions.

For any future violations of the above measures, it is also necessary to consider the risk of additional sanctions under the relevant laws and regulations of China (e.g., the above-described amendment, the Anti-Foreign Sanctions Act, and the Export Control Laws), such as (i) a complete ban on imports of raw materials, etc. from China, (ii) seizure of assets in China, (iii) restrictions on entry into the country by related individuals, and (iv) enhanced administrative fines, such as CNY 500,000 or one to five times the amount of illegal profits (applicable after March 1, 2026, the effective date of the above amendment).

Rare earths are an irreplaceable core resource used in electric vehicles, wind turbines, artificial intelligence, robots, semiconductors, and stealth fighter jets. As China is in a position to de facto monopolize the global supply chain of rare earths, if China implements its measures to strengthen export control of rare earths, it is expected to significantly affect Korea’s key industries, such as semiconductor, display, electric vehicles, electronics, aerospace, and renewable energy industries, and the companies involved.

Although there is a possibility that ongoing trade negotiations and tensions between the US and China may subside, companies should prepare by thoroughly reviewing their supply chains of rare earths subject to regulation, determining whether key rare earths fall under the scope of such regulations, securing alternative supply chains and preparing appropriate regulatory risk analyses and countermeasures.

In addition, the amendments to China’s Foreign Trade Act and the export control measures targeting Japan are significant in that China has laid the legal groundwork for using active sanctions and support measures to protect its markets and companies and has declared its willingness to enforce them. Korean companies need to be prepared for sanctions and supply chain risks in the aftermath of the China-Japan trade conflict. In particular, considering the Chinese government’s strengthened authority to take measures under the Amendment, companies must proactively review the risks of violating such measures during the course of negotiating, executing, and performing contracts—such as supply agreements—with counterparties in all countries and be prepared to respond immediately if issues arise by establishing a supply chain compliance system to monitor risks in their business relationships.

[Korean Version]

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