Introduction: Strategic Context and Market Impact
On February 24, 2026, China's Ministry of Commerce issued Announcement No. 12, adding 20 Japanese entities, including Subaru Corporation, to an export control "watchlist." The reason cited was the "inability to verify the end-use and end-user of dual-use items." This is the first explicit list-based action targeting Japanese companies since January 2026, signaling a move towards more precise, systematic, and far-reaching export controls in the fields of critical minerals and high-tech materials. Against a global backdrop of efforts to build diversified and resilient critical metal supply chains, the release of this list sends a significant message. It is not an isolated event but a result of China's ongoing efforts to strengthen its influence over rare earth pricing combined with complex international political developments. This article will delve into the background of these 20 companies, reveal their deep connections to supply chains for rare earths and other critical materials, and discuss the potential long-term impact of this action on the global industrial landscape.
As a third-party market observer, SMM has no authority to comment on government policies or the subsequent actions of these companies. This article aims only to discuss the potential market impacts based on current facts, to foster a deeper understanding within the industry.
I. An Overview of the 20 Entities: Pillars of Japan's Advanced Manufacturing and Defense Network
The 20 Japanese companies on this list were not chosen at random. They were carefully selected to precisely target the core industries that underpin Japan's advanced manufacturing competitiveness and potential military capabilities. They can be broadly categorized into four groups, collectively outlining key nodes in Japan's "military-civil fusion" industrial system:
Aerospace and Defense-Related Companies: This includes Subaru Corporation, Fuji Aerospace Technology Co., Ltd., Transport Machine Industry Co., Ltd., Itochu Aviation Co., Ltd., Mitsui & Co., Aerospace Co., Ltd., Tokin Corporation (whose high-precision spray technology is used in aviation components), and Yashima Denki Co., Ltd. (producer of high-performance motors for aerospace). A common feature among these firms is the blurred line between their civilian aviation businesses and potential defense applications. For example, Subaru, as a key participant in projects like Japan's "X-2 Shinshin" stealth fighter demonstrator, possesses precision manufacturing capabilities with inherent dual-use potential.
Core Materials and Component Suppliers: This group includes Mitsubishi Materials Corporation, ASPP Corporation (supplier of advanced semiconductor materials like silicon carbide and boron nitride), TDK Corporation, NOF Corporation, and Namirai Reagent Co., Ltd. These companies form the technological foundation of Japan's industry, providing essential basic materials and fine chemicals for semiconductors, electronics, and new energy vehicles. The ultimate performance of their products often relies on the special properties granted by critical elements like rare earths.
Data Center and Advanced Communication Technology Firms: Includes Santect Corporation and Leda Group Holdings Co., Ltd. The former is involved in specialty sensors and precision electronic components, while the latter's business spans wireless communications and industrial investment. In the digital economy, data centers are the core of computing power, and next-generation communication technologies (like 5G/6G) form the digital society's nervous system. Securing leadership and safety in these supply chains is a core national strategy.
Public Infrastructure and Energy Equipment Giants: Includes Sumitomo Heavy Industries, Ltd., ENEOS Corporation, Nissin Electric Co., Ltd., and Nitto Denko Corporation. These companies support the nation's energy, power, heavy machinery, and foundational materials industries. Among them, Nitto Denko's leading position in functional materials (e.g., optical films, rare earth magnets) makes it a crucial link between basic materials and high-end manufacturing.
A key feature of this list is that it goes beyond purely military contractors in the traditional sense, delving deep into the capillaries of the civilian high-end supply chain. This signifies that any attempt to divert cutting-edge technologies, materials, or components obtained through civilian channels for military purposes under the framework of "military-civil fusion" will now face strict scrutiny and potential supply cuts at the source.
II. A Closer Look: The Strategic Role and Rare Earth Dependence of Core Material Companies
Using Mitsubishi Materials Corporation and TDK Corporation as examples, we can clearly see Japan's efforts—and vulnerabilities—in building "closed-loop" and "de-risked" supply chains in the midstream and downstream rare earth sectors.
Mitsubishi Materials: A Key Link in Recycling and Refining
Mitsubishi Materials focuses on the recycling, refining, and high-end material production of rare earth elements, aiming to build an "urban mining" system to reduce reliance on primary ores. Its technology for efficiently recovering neodymium and dysprosium from discarded electronics and automotive motors is central to Japan's domestic resource circulation strategy. As a participant in Japan's "non-China rare earth chain" initiative, it works with companies like Sumitomo Metal Mining to refine rare earth oxides into high-purity metals. Through Mitsubishi Corporation's global resource network, it seeks diversified raw material sources. However, the economies of scale of its recycling system, the cost and environmental challenges of overseas refining projects, and its potential reliance on China's heavy rare earth separation technology remain weaknesses in its strategy.
TDK: The Magnet Giant in High-End Applications
TDK is a global leader in electronic components and high-performance neodymium-iron-boron (NdFeB) magnets. Its "NEOREC" series magnets are widely used in high-end applications such as EV traction motors, hard disk drives, and industrial robots, making it a key rare earth permanent magnet supplier outside China. Facing supply chain risks, TDK actively develops magnet technologies that reduce the use of heavy rare earths like dysprosium and terbium, explores rare-earth-free alternatives, and expands its global production footprint. However, its technological leadership remains fundamentally dependent on stable access to high-purity, high-performance raw materials like praseodymium, neodymium, dysprosium, and terbium. China's export controls directly threaten its upstream supply, impacting its global competitiveness.
Synergy and Japan's "Diversification + Reduction" National Strategy: The relationship between Mitsubishi Materials and TDK illustrates the connection between the "resource cycle" and "high-end manufacturing" segments of Japan's rare earth industry chain. Driven by national strategy, the former works to secure raw material autonomy, while the latter aims to reduce rare earth consumption per unit of output. However, the success of this strategy heavily relies on the speed of technological breakthroughs and the reliability of overseas resource projects, making it difficult in the short term to fully offset reliance on China's mature, large-scale, and efficient rare earth supply chain.
III. The Industrial Logic Behind the Controls: Full-Chain Coverage from Data Centers to Energy Infrastructure
The inclusion of data center and energy infrastructure companies reveals the systematic and forward-looking nature of these controls.
Santect and Leda Group: Represent the foundation of the future digital economy and defense technology. Specialized functional materials based on rare earth elements (like yttrium, terbium, europium) that Santect might produce—such as high-k dielectric materials for semiconductors or laser crystals—are core to advanced chips, quantum computing, and sophisticated sensors. Leda Group, as an investment holding company, potentially integrates the entire industry chain from materials to communication equipment. Controlling these two companies aims to prevent cutting-edge rare earth functional materials from flowing into potential military applications (e.g., high-performance radar, electronic warfare systems) via civilian channels.
Sumitomo Heavy Industries, ENEOS, Nissin Electric, Nitto Denko: These four companies form a complete chain from energy development and power transmission/distribution to high-end equipment manufacturing.
Sumitomo Heavy Industries uses multi-phase rare earth alloys like HoCu₂ and Er₃Ni in dilution refrigerators for quantum computing, which is central to its cutting-edge competitiveness. The potential military use of its construction machinery is also evident.
ENEOS, as Japan's largest oil refiner, participates in the state-led "Rare Earth Resource Development Alliance," reflecting Japan's strategy of treating energy security and critical mineral security with equal importance, leveraging its global project capabilities to secure upstream resources.
Nissin Electric's high-voltage power equipment forms the "blood vessels" of modern society. The potential use of rare earth permanent magnets or rare earth-based sensors in its products makes it part of critical infrastructure.
Nitto Denko is a master of functional materials. Its patents and expertise in areas like rare earth magnets and optical films make it a foundational supplier for numerous downstream industries.
Controlling these enterprises means the entire chain—from the material source (ENEOS's resource exploration), to basic components (Nitto Denko's materials, Nissin Electric's equipment), to system integration (Sumitomo Heavy's machinery)—is now 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 2011 to 2026, From "Supply Cutoff" to "Precise Control"
Fifteen years have passed since China's previous similar rare earth trade restrictions against Japan in 2011, following the Diaoyu Islands/Senkaku Islands incident. The global rare earth landscape and China's own position have undergone dramatic changes.
China's Evolving Role: China has shifted from relying mainly on more blunt administrative measures like "supply cutoffs" in the past to now implementing precise list-based management according to its domestic laws (the "Export Control Law," "Regulations on Export Control of Dual-Use Items"), using the rationale of "inability to verify end-use and end-user." This indicates China's control tools have become more mature, legalized, and refined, aiming to minimize disruption to normal global trade while maximizing deterrence and restriction against specific risk entities.
Evolution of the Global Supply Chain: The 2011 incident sparked a "rare earth panic" and supply chain diversification efforts in Japan, the US, and Europe, such as supporting the rise of Australia's Lynas. However, over a decade later, China's dominant position in global rare earth separation and processing (over 90%) has not only remained unshaken but has been further consolidated due to its technological and scale advantages in the midstream and downstream. This latest control upgrade is a stress test for global diversification efforts and highlights the extreme difficulty of building a complete rare earth supply chain independent of China.
Future Focal Points of Contention: This event will accelerate two parallel processes:
Japan's Accelerated "De-risking": Japan will inevitably increase investment in rare earth recycling, alternative material R&D, overseas resource investment (e.g., partnerships with MP Materials), and friend-shoring. However, it will face long-term challenges in areas like heavy rare earth separation and low-cost, large-scale production.
Global Rule-making Competition: China's export control measures are an exercise of its market position and industrial chain advantages to safeguard its national security and development interests. This is bound to trigger deeper competition with economies like the US, EU, and Japan over export control rules, supply chain security standards, and critical mineral alliances. Trade rules under the WTO framework face new challenges.
Conclusion
Placing 20 Japanese entities on a "watchlist" is far from a simple trade restriction; it is a calculated warning and a demonstration of capability. It clearly conveys to the world that China possesses not only resource advantages in rare earths but also full industrial chain control capabilities from separation and processing to functional material manufacturing. China is willing, within the framework of international rules and its own laws, to use this capability to safeguard its national security and prevent its technological achievements from being used for purposes detrimental to its interests.
For the global industry, this is a clear signal: in the field of critical minerals, pure market logic is being superseded by security and geopolitical logic. Building a completely "de-sinicized" supply chain is neither economical nor realistic. The future path more likely lies in seeking a form of "managed interdependence"—that is, through dialogue, rules, and limited diversification, building a more resilient, transparent, and controllable global supply chain system while acknowledging China's core advantages. This requires unprecedented international cooperation and political wisdom. China's action is both a precise strike against potential risks and could be a catalyst for promoting new, more balanced global governance rules for critical resources. The vision of shared human prosperity must be built upon a foundation of fair, transparent, and mutually respectful trade and security rules.
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