How Will China’s Imminent Export Curbs On Graphite Impact Electric Car Industry?

On October 20th, an announcement pertaining to the "Optimization and Adjustment of Temporary Export Control Measures on Graphite Items" was co-released by the Ministry of Commerce and the General Administration of Customs (hereinafter referred to as the "Announcement"). The Announcement mandates that any export of the concerned items is prohibited without prior authorization.

The "Announcement" explicitly stipulates its official implementation starting from December 1, 2023. Concurrently, Announcement No. 50 of 2006, jointly issued by the Ministry of Commerce, National Defense Science, Technology and Industry Commission, and the General Administration of Customs, titled "Decision on Implementing Temporary Export Control Measures on Graphite-Related Items", will be rescinded.

The "Announcement" underscores that any exporter who engages in unauthorized exports, operates beyond the approved scope, or commits any other legal infringements, will be subjected to administrative sanctions as per the relevant laws and regulations, enforced by authorities such as the Ministry of Commerce or Customs. ; if any crime is committed, criminal liability shall be investigated in accordance with law.

What are the items under control and the associated measures?

The "Announcement" primarily imposes control over two principal items:

The first category encompasses artificial graphite materials and their related items that exhibit high purity (greater than 99.9%), substantial strength (flexural strength exceeding 30Mpa), and elevated density (more than 1.73 g/cm³) (refer to the corresponding customs commodity codes: 3801100030, 3801909010, 6815190020).

The second category pertains to natural flake graphite and its related items, including but not limited to spherical graphite and expanded graphite (refer to the corresponding customs commodity codes: 2504101000, 2504109100, 3801901000, 3801909010, 3824999940, 6815190020).

The "Announcement" specifies that, apart from the aforementioned items, the temporary export control measures on other items listed in Announcement No. 50 of 2006, titled "Decision on Implementing Temporary Export Control Measures on Graphite-Related Items ", jointly issued by the Ministry of Commerce, National Defense Science, Technology and Industry Commission, and the General Administration of Customs, will be rescinded.

The "Announcement" underscores that exporters should process the export permit in accordance with the relevant regulations. They should submit applications to the Ministry of Commerce through the provincial commerce authorities, complete the Dual-Use Items and Technology Export Application Form, and provide the following documents:

(1) The original export contract or agreement or a photocopy or scan that is consistent with the original;

(2) A technical description or inspection report of the proposed export items;

(3) Proof of end user and end use;

(4) An introduction to the importer and end user;

(5) Identification of the applicant's legal representative, main business manager, and the person handling the matter.

The "Announcement" states that the Ministry of Commerce should review the export application documents from the date of receipt, or conduct a joint review with related departments, and make a decision to grant or deny the permit within the statutory time limit. For the export of items listed in this announcement that have a significant impact on national security, the Ministry of Commerce, together with related departments, will report to the State Council for approval. For those approved upon review, the Ministry of Commerce will issue Dual-Use Items and Technology Export Permits (hereinafter referred to as Export Permits). The procedures for applying for and issuing export permits, handling special situations, and the retention period for documents and materials are carried out in accordance with the relevant provisions of Order No. 29 of 2005 by the Ministry of Commerce and the General Administration of Customs (Regulations on the Management of Dual-Use Items and Technology Import and Export Permits).

The "Announcement" proposes that exporters should present their Export Permits to the customs, process customs procedures in accordance with the provisions of the "Customs Law of the People's Republic of China", and submit to customs supervision. Customs will carry out the inspection and release procedures based on the Export Permit issued by the Ministry of Commerce.

Spokesperson for the Ministry of Commerce Comments

The spokesperson for the Ministry of Commerce stated that on October 20th, the Ministry of Commerce in conjunction with the General Administration of Customs issued an announcement on the optimization and adjustment of temporary export control measures for graphite items. Three high sensitive graphite items, including spherical graphite, which were previously subject to temporary control, have now been officially included in the dual-use items export control list. At the same time, the temporary control over five low-sensitivity graphite items, mainly used in the basic industries of the national economy like steel, metallurgy, and chemical, such as furnace carbon electrodes has been lifted. The aforementioned policy will be officially implemented from December 1, 2023. Prior to this, we have already notified the relevant countries and regions.

The spokesperson for the Ministry of Commerce stated that the implementation of export controls on specific graphite items is an internationally accepted practice. As the world's largest producer and exporter of graphite, China has long been committed to fulfilling international obligations such as non-proliferation. In accordance with national security and interest needs, it has legally imposed export controls on specific graphite items and temporary controls on certain graphite items. Recently, the Chinese government has carried out a comprehensive assessment of temporary control measures on graphite items in accordance with the provisions of the "Export Control Law", and made decisions to optimize and adjust the measures, reflecting a balanced control concept of development and security. This is conducive to better fulfilling international obligations such as non-proliferation, ensuring the safety and stability of global supply chains and industrial chains, and better safeguarding national security and interests. China's implementation of normal adjustments to export controls is not targeted at any specific country or region. Exports that comply with relevant regulations will be granted permission.

Why Implement Export Controls?

"In the new energy vehicle industry, graphite is a commonly used material for the anode of power batteries," Xue Xu, Associate Professor at the School of Economics, Peking University, told reporters from "China Automotive News". He further stated that graphite is also a key resource in new energy vehicles, high-end equipment manufacturing, strategic emerging industries, and the nuclear power field. It is listed on both the United States' "Critical Minerals List" and China's "Strategic Mineral Resources List".

According to a recent report by the International Energy Agency, in order to achieve the goal set forth by the Paris Agreement of limiting global warming to within 2 degrees Celsius, the demand for clean energy minerals worldwide will need to at least double by 2040. The demand for minerals related to electric vehicles is projected to increase 30-fold, with lithium leading the way with a 42-fold increase, followed by graphite with a 25-fold increase. Cobalt and nickel are also expected to see significant growth, increasing by 21 and 19 times, respectively. Additionally, a single layer of carbon atoms can be stripped from graphite to create graphene, a new material that boasts greater strength than steel, superior electrical conductivity, and higher thermal conductivity. Graphene can be used in batteries to enhance their energy efficiency and safety.

Take the example of the graphene-based super-fast charging battery launched by GAC Aion, which can be charged to 80% of its capacity in just 8 minutes, boasting a range of up to 1000 kilometers.

Due to its unique structure, graphite possesses a multitude of properties such as high-temperature resistance, thermal shock resistance, electrical conductivity, lubricity, chemical stability, and plasticity. These properties make it an indispensable strategic resource for modern industrial development. Graphite is widely used in traditional industrial fields such as refractory materials, electrode brushes, pencils, casting, sealing, and lubrication. It's often referred to as a "strategic resource supporting the development of high-tech in the 21st century".

Previously, graphite consumption in low-end consumer sectors such as refractory materials and casting accounted for approximately 75%, while high-end market consumption in high-tech industries such as new energy vehicles, electronic information, and the nuclear industry accounted for about 25%. At present, with the advancement of technology and the surging demand in the new energy vehicle market, the consumption of graphite in high-end markets is gradually increasing. Currently, the consumption share in the new energy vehicle power battery sector alone has exceeded 50%, making it the number one consumer sector for graphite. Graphite has become one of the essential raw materials to ensure the stability of the new energy vehicle industry chain and enhance its core competitiveness.

It is reported that the distribution of graphite resources globally is quite concentrated, with only a few countries possessing abundant graphite mines. According to data from the United States Geological Survey, as of the end of 2022, the proven reserves of natural graphite resources worldwide were approximately 330 million tons. Turkey has the largest graphite reserves, accounting for 27.3% of the global total, followed by Brazil with 22.4%. China ranks third, accounting for 15.8%, and Madagascar is fourth with 7.9%. As one of the few countries with a full range of graphite resources, China's total reserves have long been amongst the world's highest, with approximately 260 million tons of crystalline graphite resources alone. Currently, China has established six major graphite production and processing bases, accounting for over 80% of the country's total output.

In recent years, the imported graphite products in China's graphite trade are often high-value, high-tech processed products, while exports are dominated by low-value, low-tech graphite products. The price of imported graphite in China is higher than the international trade average, while the export price is slightly lower than the international export price, creating a situation where low-value products are exported and high-value products are imported. Over the past two years, with a significant improvement in domestic graphite industry technology, this situation has improved, but there still exists a certain gap compared with developed countries.

With the strategic status of graphite resources increasingly recognized, in 2010, the European Union listed graphite as one of 14 scarce mineral resources. In 2013, the United States designated graphite as one of the strategic minerals that are difficult to acquire. In 2016, China included crystalline graphite in the catalogue of strategic minerals. On October 20, 2023, China officially added three highly sensitive graphite items, including spherical graphite, to the dual-use items export control list.

"As the relevant authorities have stated, implementing export controls on specific graphite items is an internationally accepted practice," Professor Liu Rui from the School of Applied Economics at Renmin University of China told reporters from "China Automotive News". He emphasized that this move would be beneficial for ensuring the safety and stability of the global supply chains, such as that of new energy vehicles. The significance of this action is profound and very much necessary.