China Imposes Unprecedented Rare Earth Export Controls with Extraterritorial Application: A New Chapter in Global Supply Chain Regulation

Introduction: China Exercises Extraterritorial Export Control Authority for the First Time

On October 9, 2025, China’s Ministry of Commerce (MOFCOM) announced a sweeping
expansion of export controls targeting rare earth elements, semiconductors,

superhard materials, and lithium batteries, marking a historic milestone in China’s
regulatory evolution. For the first time since establishing its modern export control
regime, MOFCOM exercised explicit extraterritorial jurisdiction, requiring foreign
entities to obtain Chinese export licenses when transferring certain controlled rare
earth materials between third countries—neither of which is China. This
unprecedented assertion of regulatory authority, combined with the introduction of a
“50% Rule” mirroring similar US export control provisions, fundamentally reshapes
the global rare earth supply chain and creates profound compliance implications for
businesses worldwide.

The significance of these measures extends far beyond their immediate impact on rare
earth trade. They represent China’s strategic response to escalating technology
competition among major economies, its determination to leverage its dominant
position in critical materials markets, and its willingness to deploy extraterritorial
regulatory tools to protect its interests. For international law firms advising clients in
defense, technology, manufacturing, and other sectors dependent on rare earth
materials, these developments demand immediate attention and comprehensive
strategic response.

China’s dominance in rare earth production and processing—controlling
approximately 70% of global mining output and over 90% of processing capacity—
provides the foundation for these assertive regulatory measures. The 13 crucial rare
earth elements now subject to enhanced controls are essential components in
advanced technologies ranging from electric vehicle motors and wind turbines to
military guidance systems and consumer electronics. By extending its regulatory reach
to control not only exports from China but also third-country transfers of materials
with Chinese content or produced using Chinese technology, China has effectively
positioned itself as a gatekeeper for global rare earth supply chains.

The Extraterritorial Jurisdiction Framework: China’s “Reexport” Control Mechanism

The centerpiece of MOFCOM’s October 9 announcements is the establishment of
extraterritorial jurisdiction over rare earth transfers between foreign countries.
MOFCOM Notification No. 61/2025 requires foreign “specific export operators”—
defined as individuals and entities outside China—to obtain Chinese export licenses
when transferring certain rare earth items from one country or region outside China to another country or region outside China. This framework closely resembles the “reexport” concept under US export control law, where transfers between third countries involving controlled content may be subject to licensing requirements.

The extraterritorial controls apply to three distinct categories of rare earth items, each
reflecting different aspects of China’s regulatory reach. The first category encompasses
rare earth permanent magnet materials and targets produced outside China that
contain, integrate, or are mixed with any of 13 specified crucial rare earth elements,
provided the value of such controlled elements constitutes at least 0.1% of the total
value. This remarkably low threshold ensures that virtually any product incorporating
meaningful quantities of these materials falls within the control framework.

The 13 specified crucial rare earth elements subject to these controls include
Samarium (Sm), Dysprosium (Dy), Gadolinium (Gd), Terbium (Tb), Lutetium (Lu),
Scandium (Sc), Yttrium (Y), Samarium-Cobalt Alloy (SmCo), Terbium-Iron Alloy (TbFe),
Dysprosium-Iron Alloy (DyFe), Terbium-Dysprosium-Iron Alloy (TbDyFe), Dysprosium
Oxide (Dy2O3), and Terbium Oxide (Tb4O7). These elements are critical components in permanent magnets used in electric motors, generators, and various high- performance applications. Their inclusion in the control framework reflects China’s strategic focus on technologies essential to energy transition, advanced manufacturing, and defense applications.

The second category subjects to control specified crucial rare earth elements,
regardless of their origin, that are produced using relevant Chinese controlled rare earth technologies as listed in MOFCOM Notification No. 62/2025. This technology- based control mechanism extends China’s regulatory reach to materials that may have no direct Chinese content but were processed using Chinese-origin technology. The third category applies to specified crucial rare earth elements originating in China, providing a straightforward origin-based control mechanism.
The implementation timeline for these measures reflects both urgency and pragmatism. Controls on rare earth elements originating in China (category three) took effect immediately on October 9, 2025. Controls on materials containing Chinese rare earth content or produced using Chinese technology (categories one and two) include a grace period, becoming effective December 1, 2025. This phased approach provides limited time for affected businesses to assess their exposure and implement
compliance measures.

Beyond licensing requirements, MOFCOM imposes an additional compliance
obligation on foreign exporters through mandatory “Compliance Statements.” Any
foreign “specific export operator” must issue these statements to overseas recipients
when transferring controlled items, informing downstream recipients of applicable
regulatory obligations, including licensing requirements for further export. This
requirement effectively creates a compliance cascade, ensuring that regulatory
obligations flow through the supply chain and that each participant understands their
responsibilities under China’s export control framework.

The “50% Rule”: China’s Response to US Export
Control Tactics

MOFCOM’s introduction of an “Affiliates Rule,” commonly known as the “50% Rule,”
represents a direct and calculated response to similar provisions in the United States
export control framework. Article 2 of MOFCOM Notification No. 61/2025 establishes a
presumptive denial of export licensing applications from importers and end-users that
appear on China’s export control entity list or watch list, as well as their branches and
subsidiaries in which listed entities own 50% or greater ownership interest.

This provision mirrors the US Department of Commerce Bureau of Industry and
Security’s longstanding practice of applying export controls not only to specifically
listed entities but also to their majority-owned affiliates. By adopting a similar
approach, China ensures that its export controls cannot be easily circumvented
through corporate restructuring or the use of affiliated entities not explicitly named on
control lists. The 50% ownership threshold creates a bright-line rule that simplifies
compliance analysis while capturing entities that are effectively controlled by listed
parties.

The legal basis for the 50% Rule derives from China’s Regulation on Export Control of
Dual-Use Items, which permits MOFCOM to reject export licensing applications from
domestic branches and subsidiaries of listed entities. The new rule extends this
authority to cover entities that are majority-owned by listed entities, even if those
entities are not explicitly named on control lists. This expansion significantly broadens
the practical scope of China’s entity-based export controls.
However, important questions remain regarding the 50% Rule’s application scope. The
rule appears as a standalone provision in MOFCOM Notification No. 61/2025 and does not explicitly state whether it applies to all items listed in China’s Export Control List of
Dual-Use Items or only to specific items referenced in the notification. Current
interpretation suggests the rule applies specifically to controlled items in the same
notification—most notably rare earth items and certain semiconductor and artificial
intelligence items. Whether MOFCOM will extend the 50% Rule to other export control
measures remains unclear, creating uncertainty for businesses subject to China’s
broader export control framework.

Significantly, the 50% Rule does not apply to China’s List of Unreliable Entities, which
constitutes a separate sanctions-related mechanism aimed at restricting blacklisted
entities from trading with China. This distinction reflects the different purposes of
these regulatory tools—export controls focus on preventing unauthorized technology
transfers, while the Unreliable Entity List serves broader economic security and foreign
policy objectives.

Strategic Implications for Defense, Technology, and Manufacturing Sectors

The rare earth export controls create immediate and profound implications for
multiple industry sectors, each facing distinct challenges and compliance
requirements. The defense sector confronts perhaps the most acute impact, as rare
earth elements are essential components in numerous military systems, including
precision-guided munitions, radar systems, electronic warfare equipment, and
advanced aircraft. The extraterritorial controls mean that defense contractors must
now track Chinese rare earth content throughout their global supply chains and obtain
Chinese export licenses for transfers between non-China locations when applicable
thresholds are met.

Technology manufacturers face equally significant challenges, particularly those
producing electric vehicles, renewable energy systems, and consumer electronics.
Rare earth permanent magnets are critical components in electric motor applications,
wind turbine generators, and various consumer devices. The 0.1% value threshold for
triggering controls ensures that virtually all products incorporating these magnets will
require compliance assessment. Manufacturers must implement systems to track rare
earth content, determine whether Chinese-origin materials or technologies are
involved, and obtain appropriate licenses for cross-border transfers.

The semiconductor industry faces a dual challenge from both the rare earth controls
and additional semiconductor-specific measures announced simultaneously by
MOFCOM. While rare earth elements play less direct roles in semiconductor
manufacturing compared to other sectors, the broader pattern of expanding Chinese
export controls creates cumulative compliance burdens. Semiconductor companies
must navigate an increasingly complex web of Chinese, US, and other national export
control regimes, each asserting extraterritorial jurisdiction over aspects of global
semiconductor supply chains.

For all affected sectors, the compliance challenges extend beyond immediate licensing
requirements to encompass broader supply chain transparency and risk management
imperatives. Companies must develop capabilities to identify Chinese rare earth
content in their products and supply chains, assess whether materials were produced
using Chinese-controlled technologies, and determine when transfers trigger licensing
requirements. This requires enhanced due diligence processes, supplier engagement
protocols, and information management systems capable of tracking complex
material flows across global operations.

Legal Basis and International Law Implications

MOFCOM’s exercise of extraterritorial jurisdiction rests on Article 49 of China’s
Regulation on Export Control of Dual-Use Items, which permits such jurisdiction under
specified conditions. However, the Regulation does not provide for the minimal
content requirement (0.1% value threshold) stated in the rare earth controls,
suggesting MOFCOM has interpreted its authority expansively. This raises questions
about the legal foundation for certain aspects of the controls and potential challenges
to their validity.

From an international law perspective, the extraterritorial controls present complex
jurisdictional questions. Traditional principles of international law recognize states’
authority to regulate activities within their territory and, in some circumstances, to
regulate their nationals’ conduct abroad. However, the assertion of control over
foreign persons’ transfers of foreign-origin goods between foreign countries, based
solely on Chinese content or technology involvement, pushes the boundaries of these
principles. The controls may be analyzed under various international law frameworks. The effects
doctrine, recognized in some jurisdictions, permits regulation of foreign conduct that produces substantial effects within the regulating state’s territory. China might argue
that unauthorized transfers of rare earth materials undermine its export control
objectives and thus produce effects warranting regulatory jurisdiction. However, the
strength of this argument depends on demonstrating concrete effects beyond general
policy concerns.

Alternatively, China might justify the controls based on its authority over Chinese-
origin materials and technologies. Under this theory, China retains regulatory interest in items that originated in China or were produced using Chinese technology, even
after they leave Chinese territory. This approach finds some support in intellectual
property principles recognizing ongoing rights in technology and know-how, though
its application to export controls remains contested.

The international law implications extend to potential conflicts with other nations’
legal frameworks. When Chinese export controls require licenses for transfers that
other countries permit or even encourage, affected businesses face impossible
compliance dilemmas. These conflicts may trigger diplomatic tensions and potentially
lead to challenges before international dispute resolution bodies, though the
effectiveness of such challenges remains uncertain given the political sensitivities
involved.

Compliance Strategies and Risk Mitigation for Global Businesses

Businesses affected by the rare earth export controls must implement comprehensive compliance strategies addressing both immediate licensing requirements and longer- term supply chain resilience. The first priority involves conducting thorough assessments of current operations to identify exposure to the new controls. This requires mapping supply chains to identify rare earth content, determining whether materials originated in China or were processed using Chinese technology, and
evaluating which transfers may trigger licensing requirements.

For products and materials subject to the controls, companies must establish
processes for obtaining required licenses from MOFCOM. This involves understanding
Chinese licensing procedures, preparing applications with required documentation,
and managing approval timelines that may extend weeks or months. Companies should anticipate that license applications involving sensitive end-uses or destinations may face enhanced scrutiny or denial, requiring alternative sourcing strategies.

Supply chain diversification emerges as a critical longer-term strategy, though one
facing significant practical challenges. China’s dominant position in rare earth
processing means that truly China-free supply chains remain difficult or impossible to
establish for many applications. However, companies can explore opportunities to
source materials from alternative suppliers, invest in processing capabilities outside
China, or develop technologies that reduce rare earth dependence. These strategies require substantial time and investment but may prove essential for managing long-term supply security.

Enhanced due diligence and supplier engagement protocols become essential
compliance tools. Companies must require suppliers to provide detailed information
about rare earth content, origin, and processing methods. Contractual provisions
should address compliance responsibilities, including obligations to provide
necessary documentation for license applications and to notify customers of changes
in material sourcing that might affect export control status. Supplier audits may be
necessary to verify the accuracy of provided information.

Technology and systems investments can support compliance efforts by enabling
better tracking and management of controlled materials. Enterprise resource planning
systems should be configured to flag products and transfers potentially subject to
Chinese export controls. Compliance management platforms can facilitate license
application processes, track approval status, and maintain required records. Data
analytics tools can help identify patterns and risks in global operations that might
otherwise escape notice.

Legal and regulatory monitoring must become ongoing priorities, as China’s export
control framework continues to evolve. Companies should establish processes to track
MOFCOM announcements, regulatory guidance, and enforcement actions that might
affect their operations. Engagement with industry associations and legal advisors can
provide early warning of regulatory developments and insights into emerging
compliance best practices.

Conclusion: Navigating the New Reality of Chinese Export Control Extraterritoriality

China’s October 9, 2025 rare earth export controls mark a decisive turning point in
global supply chain regulation and international economic governance. By exercising
extraterritorial jurisdiction for the first time in its export control regime and
implementing a 50% Rule targeting entity list affiliates, China has demonstrated both
its willingness and its capacity to leverage its dominant position in critical materials
markets to advance strategic objectives. For businesses worldwide and the law firms
that advise them, these developments create urgent compliance imperatives and
fundamental strategic challenges.

The immediate priority involves ensuring compliance with the new licensing
requirements and avoiding violations that could trigger enforcement actions, supply
chain disruptions, or reputational damage. This requires rapid assessment of
exposure, implementation of compliance processes, and engagement with MOFCOM
licensing procedures. Companies cannot afford delay, as the December 1, 2025
effective date for key provisions approaches rapidly.

Beyond immediate compliance, businesses must grapple with longer-term strategic
questions about supply chain resilience, technology development, and market
positioning in an environment of expanding regulatory fragmentation. The rare earth
controls exemplify a broader trend toward assertive extraterritorial regulation by
major economies, each seeking to advance national interests through control over
critical supply chains and technologies. Success in this environment requires not only
legal compliance but also strategic adaptation to a fundamentally changed global
economic landscape.

For international law firms, these developments create both challenges and
opportunities. Clients require sophisticated guidance navigating complex and
potentially conflicting regulatory requirements across multiple jurisdictions. They
need strategic counsel on supply chain restructuring, technology development, and
risk management in an environment of regulatory uncertainty. They demand advocacy
before regulators and, when necessary, defense against enforcement actions. Firms
that develop deep expertise in Chinese export controls and their intersection with
broader global regulatory frameworks will be well-positioned to serve clients facing
these challenges.

The message for global business is unambiguous: China’s regulatory reach has
extended beyond its borders, and compliance frameworks must adapt accordingly.
The era of treating Chinese export controls as purely territorial regulations has ended.
In its place emerges a new reality where Chinese regulatory authority follows Chinese
materials and technologies wherever they flow in global commerce. Businesses and
their legal advisors must rise to meet this challenge, developing the capabilities and
strategies necessary to navigate this transformed regulatory landscape while
maintaining operational effectiveness and competitive position.

References

[1] White & Case LLP. (2025, October 13). China imposes extraterritorial jurisdiction and
a 50% Rule for export controls on rare earth elements and other items. https://www.whitecase.com/insight-alert/china-imposes-extraterritorial-jurisdiction-and-50-rule-export-controls-rare-earth

[2] Mayer Brown. (2025, October 13). PRC Announces New Export Controls on Rare
Earth and Battery Materials and Technology. https://www.mayerbrown.com/en/insights/publications/2025/10/prc-announces-new-export-controls-on-rare-earth-and-battery-materials-and-technology

[3] Reuters. (2025, October 9). China expands rare earths restrictions, targets defense and high-tech. https://www.reuters.com/world/china/china-tightens-rare-earth-export-controls-2025-10-09/