Preface: Strategic Context and Market Impact of Escalating Controls
On February 24, 2026, China's Ministry of Commerce issued Announcement No. 12 of 2026, listing 20 Japanese entities, including Subaru Corporation, on the export control "Watch List" on the grounds of "inability to verify the end-user and end-use of dual-use items." This move marks the first time since January 2026 that China has explicitly targeted Japanese enterprises with such list-based management measures, signaling that export controls in the fields of critical minerals and high-tech materials are developing towards more precise, systematic, and in-depth directions. The release of this list sends a significant signal against the global macro backdrop of efforts to build diversified and resilient critical metal supply chains. It is not an isolated event but rather a result of the combined effects of China strengthening its pricing power over rare earths and the complex evolution of international politics. This article will conduct an in-depth analysis of the core backgrounds of these 20 enterprises, reveal their deep connections with supply chains of critical materials such as rare earths, and explore the potential impact of this move on the subsequent global industrial landscape.
Of course, as a third-party market observation institution, SMM has no authority to comment on policies or the measures taken by enterprises. This article only discusses the possible market impacts based on current facts, aiming to foster a deeper understanding within the industry.
I. Panoramic Scan of the Twenty Entities: The Pillar Network of Japan's High-End Manufacturing and Defense Industry
The 20 Japanese enterprises included in the list were not randomly selected but were carefully screened to precisely cover the core pillar industries that sustain Japan's competitiveness in high-end manufacturing and its potential military capabilities. They can be broadly categorized into four main groups, collectively outlining the key nodes of Japan's "military-civilian integration" industrial system:
1. Aerospace and Defense-Related Enterprises: These include Subaru Corporation, Fuji Aerospace Technology Co., Ltd., Transport Aircraft Industries Co., Ltd., Itochu Aviation Co., Ltd., Mitsui Aerospace Co., Ltd., Togane Corporation (whose high-precision spraying technology is applied to aviation components), and Yashima Denki Co., Ltd. (producing high-performance motors for aerospace applications). The common characteristic of these enterprises is the inextricable technological and supply chain links between their civil aviation businesses and potential defense applications. For instance, Subaru, as a key participant in projects like Japan's "Shinshin" stealth fighter, possesses precision machining capabilities that are inherently dual-use.
2. Core Materials and Components Suppliers: These include Mitsubishi Materials Corporation, ASPP Corporation (supplying advanced semiconductor materials such as silicon carbide and boron nitride), TDK Corporation, Nippon Oil Corporation, and Nakarai Reagents Co., Ltd. These enterprises form the bedrock of Japan's technology-driven nation, providing indispensable basic materials and precision chemicals for industries such as semiconductors, electronic information, and NEVs. The performance limits of their products often depend on special functions endowed by key elements like rare earths.
3. Data center and advanced communication technology enterprises: including Sanki Techno Co., Ltd. and Lida Group Holding Co., Ltd. The former is involved in specialized sensors and precision electronic components, while the latter's business covers wireless communications and industrial investments. In the digital economy era, data centers are the core carriers of computing power, and next-generation communication technologies (such as 5G/6G) are the neural networks of a digital society. Ensuring the security and leadership of supply chains in these areas is a core national strategy.
4. Public infrastructure and energy equipment giants: including Sumitomo Heavy Industries, Ltd., ENEOS Corporation, Nissin Electric Co., Ltd., and Nitto Denko Corporation. They support the country's energy and power, heavy machinery, and basic material industries. Among them, Nitto Denko's leading position in functional materials (such as optical films, rare earth magnets) makes it a critical link between basic materials and high-end manufacturing.
A notable feature of this list is that it goes beyond traditional pure military enterprises and penetrates deep into the capillaries of civilian high-end supply chains. This means that any attempt to use the "military-civil fusion" path to apply cutting-edge technologies, materials, and components obtained from civilian supply chains for military purposes will face strict scrutiny and potential supply disruption risks at the source.
II. Deep Focus: Strategic Roles of Core Material Enterprises and Rare Earth Dependence
Taking Mitsubishi Materials Corporation and TDK Corporation as examples, one can clearly see Japan's efforts and inherent vulnerabilities in building a "closed loop" and "de-risking" in the downstream of the rare earth supply chain.
Mitsubishi Materials: A Key Link in Resource Recycling and Refining
Mitsubishi Materials' strategic role focuses on the recycling, refining, and preparation of high-end materials of rare earth elements, aiming to build a "urban mine" system and reduce dependence on primary ores. Its technology for efficiently recovering neodymium and dysprosium from waste home appliances and automotive motors is crucial for establishing a domestic resource recycling system in Japan. At the same time, as a participant in Japan's "non-Chinese rare earth chain" initiative, it, along with Sumitomo Metal, takes on the midstream process of refining rare earth oxides into high-purity metals. Through Mitsubishi Corporation's global resource layout, it seeks to open up diversified raw material sources for Japanese industries. However, the economies of scale of its recycling system, the cost and environmental protection challenges of overseas refining projects, and the potential reliance on China's heavy rare earth separation technology are all weaknesses in its strategy.
TDK: A Magnet Giant in the High-End Application Market
TDK is a global leader in electronic components and high-performance NdFeB magnets. Its "NEOREC" series magnets are widely used in high-end fields such as EV drive motors, hard disk drives, and industrial robots, making it one of the main suppliers in the rare earth permanent magnet market outside China. Facing supply chain risks, TDK has been continuously developing magnet technologies to reduce the usage of heavy rare earths like dysprosium and terbium, and even exploring rare earth-free alternatives; on the other hand, it is actively expanding its global production layout. However, its technological leadership still relies on stable access to high-purity, high-performance rare earth raw materials such as praseodymium, neodymium, dysprosium, and terbium. China's export controls directly impact its upstream raw material supply, thereby threatening its global competitiveness.
Synergy Between the Two and Japan's "Diversification + Reduction" National Strategy: The relationship between Mitsubishi Materials and TDK reflects the linkage between the "resource recycling" and "high-end manufacturing" segments in Japan's rare earth industry chain. Driven by national strategy, the former focuses on enhancing raw material autonomy, while the latter aims to reduce rare earth consumption per unit of product. However, the success of this strategy highly depends on the pace of technological breakthroughs and the reliability of overseas resource projects, making it difficult to fully offset reliance on China's mature, large-scale, and efficient rare earth supply chain in the short term.
III. The Industrial Logic Behind the Controls: Full-Chain Coverage from Data Centers to Energy Infrastructure
The inclusion of data center and energy infrastructure enterprises in the list reveals thesystematic and forward-lookingnature of the control measures.
Santekuto and Lida Group: represent the foundation of the future digital economy and national defense technology. The special functional materials based on rare earth elements (e.g., yttrium, terbium, europium) that Santekuto may produce, such as high-K dielectric materials for semiconductors and crystals for lasers, are core to high-end chips, quantum computing, and advanced sensors. As an investment holding company, Lida Group may integrate the entire industry chain from materials to communication equipment. Controlling these two enterprises aims to prevent advanced rare earth functional materials from flowing into potential military applications through civilian channels, such as high-performance radar, electronic warfare systems, or encrypted communication equipment.
Sumitomo Heavy Industries, ENEOS, Nissin Electric, Nitto Denko: These four enterprises form a complete chain from energy development and power transmission/distribution to high-end equipment manufacturing.
Sumitomo Heavy Industries' use of multiphase rare earth alloys such as holmium-copper and erbium-nickel in quantum computing dilution refrigerators is at the core of its cutting-edge technological competitiveness. The potential military applications of its construction machinery are also evident.
ENEOS, as Japan's largest oil refiner, participates in the state-led "Rare Earth Resources Development Alliance," reflecting Japan's strategic approach of prioritizing both energy security and critical mineral security, attempting to leverage its global project operation capabilities to secure upstream resources.
Nissin Electric's high-voltage power equipment serves as the "blood vessels" of modern society; its stable operation is vital to the national economy and people's livelihoods. The potential use of rare earth permanent magnets or rare earth-based sensors makes it a part of critical infrastructure.
Nitto Denko is a master of functional materials; its patents and technological reserves in areas such as rare earth permanent magnets and optical films make it a cornerstone supplier for numerous downstream industries.
Regulating these enterprises means that the entire chain—from the source of materials (ENEOS's resource exploration), to basic components (Nitto Denko's materials, Nissin Electric's equipment), and further to system integration (Sumitomo Heavy Industries' machinery)—has come under scrutiny. This significantly increases the complexity and cost for Japan to indirectly obtain critical dual-use items through civilian supply chains.
IV. Historical Echoes and Future Outlook: From Supply Cutoff to Precise Control, 2011-2026
Fifteen years have passed since China last implemented similar rare earth trade restrictions against Japan in 2011 due to the Huangyan Island incident. During these 15 years, both the global rare earth landscape and China itself have undergone tremendous changes.
China's Evolving Role : The approach has shifted from relying mainly on relatively crude administrative measures like "supply cutoff" in the past to now implementing precise, list-based management based on domestic law (the Export Control Law, the Dual-Use Items Export Control Regulations) using the reason of "inability to verify the end-user and end-use." This indicates that China's control tools have become more mature, rule-of-law-based, and refined, aiming to minimize the impact on normal global trade while maximizing the deterrent and restrictive effect on specific risky entities.
Evolution of Global Supply Chains : The 2011 turmoil spurred "rare earth panic" and supply chain diversification efforts in Japan, Europe, the US, and other countries, such as supporting the rise of Australia's Lynas. However, more than a decade later, China's dominant position in the global rare earth smelting and separation sector (accounting for over 90%) has not only remained unshaken but has become further consolidated due to its technological accumulation and scale advantages in the midstream and downstream of the industry chain. This escalation of controls serves as a stress test for the effectiveness of global diversification efforts and also reveals the extreme difficulty of building a complete and independent rare earth supply chain separate from China.
Future Focus of Competition : This incident will accelerate two parallel processes:
Japan's "De-risking" Acceleration : Japan will inevitably further increase its investments in rare earth recycling, development of substitute materials, overseas resource investments (such as cooperation with MP Materials), and friend-shoring. However, it will continue to face long-term challenges in areas such as heavy rare earth separation and low-cost, large-scale production.
Contest over Global Rules : China's export control measures represent the use of its market position and industry chain advantages to safeguard national security and development interests. This is bound to trigger deeper contests with economies like the US, Europe, and Japan regarding export control rules, supply chain security standards, and critical minerals alliances. Trade rules under the WTO framework face new challenges.
Conclusion
Placing 20 Japanese entities on the "watch list" is by no means a simple trade restriction but a deliberate warning and demonstration of capability . It clearly conveys the following message to the world: China not only possesses the advantage in rare earth resources but also has control capability over the entire industry chain from separation and smelting to functional material manufacturing; China is willing, under the premise of complying with international rules and its own laws, to use this capability to safeguard national security and prevent its technological achievements from being used in ways detrimental to its own interests.
For the global industry, this is a clear signal: in the field of critical minerals, pure market logic is giving way to security logic and geopolitical logic . Building a completely "de-sinicized" supply chain is neither economical nor realistic. The future path is more likely to lie in seeking a form of "managed interdependence"—that is, by acknowledging China's advantage in core segments, and through dialogue, rules, and limited diversification, establishing a more resilient, transparent, and controllable global supply chain system. This requires unprecedented international cooperation and political wisdom. China's current action is both a precise strike against potential risks and could also serve as a catalyst for promoting the establishment of new, more balanced global governance rules for critical resources. The vision of shared human prosperity must be built upon fair, transparent, and mutually respectful trade and security rules.
