Export Control, Public Procurement, Involution and more

Right after the National Day Holidays, China announced a series of new export controls on rare earths and related materials – further tightening the tense situation. For German companies, this development significantly increases the risk of supply chain disruptions and makes easing the export control licensing process again more urgent.  We are still trying to improve and facilitate the issue with the Chinese authorities.

The Ministry of Commerce (MOFCOM) announced a decision to impose export controls on certain rare earth-related items. An export license is now required for any product containing ≥ 0.1% of Chinese rare earths, even if it’s processed in a third country and then exported elsewhere. Licenses are also needed for advanced chips (≤14 nm logic / ≥ 256-layer memory) and AI-related products (including equipment, testing tools, and materials) with potential military use. Applications involving military entities on China’s control lists (including their subsidiaries and affiliates with over 50% ownership) will generally be denied.

Since it is certainly difficult to prove that rare earth components do not exceed such low thresholds, and since MOFCOM has not yet clarified how the approval process will work or what documentation will be required, virtually all products somehow containing rare earths are now clearly subject to export controls. Furthermore, the regulations now introduce an exterritorial element and it remains unclear how China plans to enforce these rules on companies operating outside its borders. (Note that, judging from previous export controls, this remains a rather theoretical concern.)

MOFCOM also announced the Decision to Impose Export Controls on Rare Earth-Related Technologies. It prohibits the export of technologies and their equipment related to rare earth mining, smelting and separation, metal refining, magnet manufacturing, and recycling of secondary rare earth resources, as well as technologies for the assembly, debugging, maintenance, repair, and upgrading of production lines involved in these processes.

Since December 2023, China has restricted the export of rare earth processing technologies. The new decisions further aim to prevent the outflow of rare earth recycling technologies. These measures are likely to ensure that China remains in control of the rare earths value chain for years to come. While the decisions are not expected to have a direct short-term impact on exports for German companies, they are likely to increase the dependence on Chinese technological know-howover the long term.

MOFCOM and the General Administration of Customs issued four decisions to impose export controls from November 2025 on certain medium and heavy rare earth-related items, including Holmium, Erbium, Thulium, Europium, and Ytterbium mostly used in high-end photonics and laser technologies, some lithium batteries and artificial graphite anode materials specially for electric vehicle manufacturing and energy storage systems, certain superhard materials for industries requiring cutting and grinding tools as well as certain rare earth equipment and raw/auxiliary materials.

This is part of China’s effort to strengthen control over critical items and mineral materials.  German companies in the relevant industries need to evaluate whether their products fall within this scope and ensure they apply for export licenses as required.

The General Office of the State Council issued the Notice on Implementing Domestic Product Standards and Related Policies in Government Procurement, which stipulates that products made or substantially produced in China, including domestic products owned foreign brands, will receive a 20% evaluated-price advantage in tender processes. Compared with the draft released in December, the final version clarifies a five-year timeline for determining domestic component cost ratios, introduces a three-to-five-year transition and a “dynamic adjustment mechanism”, and prohibits designating certain brands or restricting brands based on registration location or ownership.

The German Chamber of Commerce in China submitted comments on the draft. While some were taken into account (such as clearer timeline, the dynamic adjustment and a clear ban on discrimination based on brand), the overall strategic direction remains unchanged. It continues to favor well-localized operations. German companies need to prepare for a tightening of the already challenging government procurement environment amid ongoing strategic industrial plans and a stronger “Buy China” trend.

MOFCOM and three other government agencies announced that export licenses will be required for pure-electric passenger vehicles (EVs) from January 1, 2026. This does not include hybrid models.

By channeling EV exports through official channels, China aims to promote the high-quality trade development. The notice targets tocurb unhealthy price competition among Chinese automakers and limit slow-quality exports lacking spare parts, service, or warranty, thereby enhancing the reputation of Chinese brands abroad. As German automakers currently export only few EVs from China, the immediate impact on them remains limited for the time being.

The National Development and Reform Commission (NDRC) and the State Administration for Market Regulation (SAMR) announced plans to investigate illegal pricing practices and to issue guidelines for appropriate pricing to discourage unsustainable competition. The authorities will conduct cost and price inspections, including the reminding, warning, and penalizing of companies found to be engaging in unfair price competition.

This marks one of China’s latest efforts to curb unfair competition. Since late last year, the top leadership has made tackling the “involution” issue a strategic priority and has been launching industry-wide reforms to curb excessive price competition. However, achieving a sustainable demand-supply balance and building a healthy market-based competitive environment will require deeper institutional reforms.

The Ministry of Industry and Information Technology (MIIT) and five other departments issued the Work Plan for Stabilizing Growth in the Machinery Industry (2025–2026). The plan targets an average annual revenue growth rate of around 3.5% (6% in 2024) and total revenue exceeding RMB 10 trillion (RMB 31.5 trillion in 2024). Key measures include boosting demand for construction machinery, rail transit equipment, civilian machinery, and logistics equipment through various policy projects.

China aims to address pricewars and overcapacity across a wide range of industries including machinery, while continuing to support the sector by stimulating potential demand. Notably, a more sustainable development of the Machinery Industry should be achieved by lowering the growth target. More stability is sustainability is welcomed by German machinery companies who are seeing a lot of their competitors operating below margins.

MIIT and seven other ministries issued the Work Plan for Stabilizing Growth in the Non-Ferrous Metals Industry (2025–2026), which calls for a continuous strengthening of high-end product supply capabilities, as well as sustained progress in green, low-carbon, and digital development. Main targets for the next two years are the industry’s added value to grow at an average annual rate of around 5% (2024: year-on-year growth of 8.9%).

The plan calls for a shift toward greener and higher value-added production to stabilize profit margins and ease competitive pressures. It is encouraging to see stronger efforts to support more sustainable industrial upgrading.