China hatches plan to keep US military from getting its rare-earth magnets
Beijing is considering a “validated end-user” system that would facilitate the export of such materials.
China plans to ease the flow of rare earths and other restricted materials to the U.S. by designing a system that will exclude companies with ties to the U.S. military while fast-tracking export approvals for other firms, according to people familiar with the plan.
The “validated end-user" system, or VEU, would enable Chinese leader Xi Jinping to follow through on a pledge to President Trump to facilitate the export of such materials while ensuring that they don’t end up with U.S. military suppliers, a core concern for China, according to the people familiar with the plan.
If strictly implemented, the system could make importing certain Chinese materials more difficult for automotive and aerospace companies that have both civilian and defense clients. Beijing’s plan could still change and its licensing system wouldn’t be certain until it is implemented, the people said.
China’s Ministry of Commerce didn’t respond to a request for comment.
Rare-earth magnets and other restricted materials are used widely in civilian goods such as electric vehicles and passenger jets, but are also needed in jet fighters, submarines and attack drones.
The VEU mechanism that Beijing is considering is modeled on U.S. laws and procedures, as is much of Beijing’s export-control architecture.
Under the American version of the VEU system, which has been active since 2007, certain Chinese companies are cleared to buy sensitive goods under a general authorization—essentially a simplified export-approval mechanism—instead of needing individual licenses for each purchase.
This makes it easier to import controlled goods such as chemicals or chip-making equipment, but requires companies to put up with U.S. government inspections of their facilities, among other steps, to verify compliance with the program.
Since April, Beijing has used restrictions on the export of powerful rare-earth magnets to win concessions from the U.S. in the trade war. Following the Oct. 30 truce between Trump and Xi, which saw both sides make concessions, China has publicly committed to issuing general licenses to ease the flow of controlled materials.
While Trump has said that the issuance of general licenses by Beijing will mark the de facto end of export curbs on critical materials, Beijing appears to be keeping some of the controls in place, even as it tries to ease exports for proven civilian uses.
Beijing hasn’t made clear which companies will be eligible for general licenses, or exactly what benefits such licenses would provide.
It isn’t clear how long VEU protections would last. Under the U.S. system, Chinese companies that are cleared to receive purchases under the VEU sometimes have this clearance taken away, which has caused consternation in Beijing.
As a result, many companies may continue to decide to seek out alternative sources of controlled products, even if they can benefit from China’s VEU arrangement.
In recent months, companies in the U.S. and Europe have complained of reduced access to rare-earth magnets. Though China has periodically agreed to relax magnet restrictions, Chinese rare-earth magnet exports to the U.S. declined 29% in September from the month before, in a sign that curbs continued to affect companies in the weeks leading up to the truce.
Write to Jon Emont at jonathan.emont@wsj.com and Raffaele Huang at raffaele.huang@wsj.com
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