China's Export Restrictions on Dual-Use Goods Escalate Tensions with Japan

Background and Immediate Reactions

China has implemented a comprehensive ban on exporting dual-use goods to Japan, a move that has drawn strong criticism from Tokyo. The restrictions cover goods, software, and technology that have both civilian and military applications, including rare earth minerals essential for producing drones and semiconductor chips ¹

The decision comes amid heightened tensions between the two nations following comments by Japanese Prime Minister Sanae Takaichi in late 2025. Takaichi suggested that a potential Chinese attack on Taiwan could be considered an existential threat to Japan. China views Taiwan as part of its territory, and Beijing has demanded that Takaichi retract her statement ²

Economic and Strategic Implications

The export ban has significant economic implications, particularly for Japan's manufacturing sector. Japan remains heavily reliant on China for approximately 60% of its rare earth imports, with dependence on certain heavy rare earth elements being even more pronounced ²

Key sectors that could be affected include:

• Automotive manufacturing
• Electronics production
• Defense industry

The Japanese government has expressed deep concern over the restrictions. Chief Cabinet Secretary Minoru Kihara stated that such targeted measures are 'completely unacceptable' and contrary to international practices ²

Market Reactions

The news triggered negative market reactions in Japan, with the Nikkei index falling approximately 1% on the day of the announcement. Shares of major defense contractors like Kawasaki Heavy Industries and Mitsubishi Heavy Industries were particularly affected, dropping around 2% each ²

Future Outlook

The situation remains fluid, with reports suggesting China may consider further restrictions on rare earth exports to Japan. Any additional measures could have far-reaching consequences for Japan's industrial base, particularly in sectors reliant on Chinese rare earth supplies ²