China also uses rare earths to target Europe

The European Commissioner for Trade and Economic Security, Maros Sefcovic, arrived in Beijing yesterday with the stated aim of persuading the Chinese authorities to take steps to redress a trade relationship that has become increasingly difficult for the European Union to sustain. But on the agenda for talks with his Chinese counterpart, Wang Wentao, there is also another priority issue for the EU, albeit one that has received little public discussion: the case of the fourteen European companies that Beijing added to its export control list on 24 July. The move came as a surprise, just a few hours after the EU adopted its 21st package of sanctions against Russia, which had placed fourteen Chinese and Hong Kong-based companies on the European list.

In retaliation, Beijing banned the export to European companies of goods and technologies considered to be dual-use, leaving only the option of applying for special bureaucratic authorisations. And China’s support for Russia’s war against Ukraine was once again highlighted the day before yesterday by the European Parliament: with 454 votes in favour, 86 against and 110 abstentions, Strasbourg adopted a resolution calling for a tougher stance from the Commission towards Beijing. The text describes China as a “key enabler” of Russia’s war against Ukraine, calls for a continuous European naval presence and joint exercises in the Taiwan Strait, and defines China’s industrial policy as an “existential threat” to the Union. China’s trade war against the European market overlaps with its foreign policy objectives, which is why negotiating and dealing with these issues at separate tables – trade on the one hand, security on the other – now seems to many to be a futile exercise. Among the fourteen companies to which China suddenly denied access to its rare earths and magnets three months ago are giants such as the German firm Rheinmetall, as well as two Italian firms: Lafert, a Veneto-based manufacturer of electric motors and generators, and Garnet, a Brianza-based company specialising in magnets, rare earths and magnetic components.

For both, an international crisis has turned into a very real production problem – exactly what Beijing wanted to achieve. Because it is no longer just a matter of controlling exports of rare earths, magnets and materials related to their processing: “Being on that list means that every product destined for us from China is meticulously scanned, and it takes an age to arrive,” Leopoldo Iurino, sole director of Garnet Italia, tells Il Foglio. “More than half of our turnover comes from there, so there are certainly consequences for deliveries.” Iurino says he has provided the Italian authorities with all the information requested, and has found several contacts who have taken the situation to heart: “We have made ourselves fully available to the authorities involved,” he says. But the problem is that the decision “was taken directly by the Chinese Ministry of Commerce”, and the company has had no opportunity to speak to those who placed it on the list. This is an effective approach for Beijing, and one that differs from the European one: according to established practice, companies accused of aiding Russia and potentially subject to sanctions receive several communications from Brussels before being included on the lists – there are communications, negotiations and adjustments. In July, however, for the first time, China added fourteen companies to its blacklist without warning and without explanation. The impact on Garnet will be felt in the medium to long term: “We also have annual supply contracts. However, if this situation continues, the impact will be serious and we will need to work out how to proceed.” For now, says Iurino, “our priority is to get off that list and get back to working normally”. Some investments “that we wanted to pursue – to expand and take on new staff – are all things we’ve been forced to put on hold for the time being. The point is that if we’re up against the government of the People’s Republic of China, the world’s second-largest economy, we need help”. According to a report in yesterday’s Financial Times, Beijing has already asked the European delegation to lift sanctions against some of its companies accused of supporting Russia in the war against Ukraine, and to remove export controls on technologies such as those produced by the Dutch giant ASML, which are essential for chip production. China speaks the language of blackmail, just like Russia.