Japan pays price for misled security moves

As China-Japan relations remain strained over Japanese Prime Minister Sanae Takaichi's erroneous remarks on Taiwan and her administration's accelerated military buildup, Japan's economy is increasingly feeling the pinch, with critical mineral exports from China plunging, supply chains buckling under pressure and billions in potential GDP losses looming, experts said.

What is truly pushing Japanese businesses into difficulty is not China's lawful measures to safeguard national security, but the systemic risks spawned by Japan's own misguided security trajectory, they added.

According to the General Administration of Customs, China's exports of rare earth magnets to Japan plummeted 34.6 percent to 123 metric tons in May compared with April, while monthly shipments have remained below 200 metric tons for three consecutive months.

Since the start of 2026, China has banned shipments of dual-use items and technologies, including rare earth elements, to Japan. Such items and technologies have both civilian and military applications.

The ban came on the heels of a downward spiral in China-Japan relations, triggered by Takaichi's remarks and her administration's military-related moves.

China's tighter export controls have prompted Japan to take unprecedented steps. Recently, All-Nippon News Network reported that Japan has launched its first-ever program to extract rare earth elements from discarded household air-conditioners.

Mitsubishi Electric, the Japanese company spearheading that recycling initiative, was added to China's export control list in late June for its involvement in defense electronics, radar and missile systems.

The June decision, which imposed a total ban on dual-use item exports to 20 Japanese entities and implemented heightened scrutiny against 20 others, followed a similar decision in February that targeted 40 Japanese entities.

Shen Yi, a professor at Fudan University's School of International Relations and Public Affairs, said, "The Japanese government's bet that it can continue its military expansion and provocative rhetoric without paying a real price is doomed to fail."

Shen noted that China accounts for roughly 70 percent of global rare earth mining and over 90 percent of smelting and separation capacity, giving the nation's policy tools the weight to alter Japanese corporate calculations.

China boosts self-reliance

Experts said that Japan's attempts to leverage its edge in the semiconductor sector through potential export controls will ultimately prove futile, as foreign restrictions are only accelerating China's push for self-reliance, turning what was meant as a chokehold into a catalyst for domestic substitution.

For instance, there is "significant progress" in the domestic production potential of photoresist, the light-sensitive material essential for etching microscopic circuits onto silicon wafers, sources from leading Chinese chipmakers such as Semiconductor Manufacturing International Corp and Huahong Group told China Daily.

Jiangsu Nata Opto-electronic Material Co, which developed one of China's first high-end deep ultraviolet photoresists, said the company's revenue from the product exceeded 10 million yuan ($1.5 million) in 2024, and it maintained a stable supply in 2025.

According to data from Japanese research company Global Net, last year, three Chinese chip equipment manufacturers ranked among the world's top 20 by sales volume for the first time.

This marks a sharp rise from just one company in 2022, prior to stricter restrictions imposed by the United States, underscoring China's accelerated progress in bolstering the domestic supply chain.

Roger Sheng, vice-president of research at US market research company Gartner, noted that the technological gap between Chinese companies and international industry leaders is continuously narrowing.

"This progress has provided strong support for domestic chip manufacturers in their technological upgrades and production expansion efforts, even amid restrictions on access to Japanese technology and equipment," Sheng said.

With the exception of lithography machines, domestic tools are now being increasingly used in Chinese semiconductor factories, he said, citing the example of Naura Technology becoming a key equipment provider for another Chinese company's advanced memory chips.