China strengthened export controls on some categories of graphite, a key material in electric vehicle batteries, in a move that would “safeguard national security and interests.”
Some types of graphite deemed highly sensitive will be subject to so-called “dual-use item” export controls from Dec. 1, the Ministry of Commerce said in a statement on Friday. Dual-use refers to applications that include the military.
Beijing’s order comes days after the Biden administration stepped up efforts to keep advanced chips out of China, a campaign that includes restricting the sale of processors designed specifically for the Chinese market. US Ambassador to China Nicholas Burns said the measures were needed to close loopholes, according to an interview on Thursday.
The graphite items had been subject to a temporary export control order initiated in 2006, according to the commerce ministry. At the same time, China said it would remove its temporary export controls on less sensitive graphite categories used in the steel, metallurgy and chemical industries.
Graphite is an essential ingredient in EV battery anodes, a terminal inside a rechargeable cell. Battery makers can either use natural graphite extracted from mines to make anodes, or a synthetic material that’s typically more expensive but lasts longer, charges faster and improves safety. China is a major source of the raw material, and also accounts for about 60% of natural graphite production capacity and 90% for the synthetic variety.
Shocking Development
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“This definitely will affect EV and batteries industry hard,” said Daniel Kollar, head of Automotive and Supply Chain at consultancy Intralink, referring to China’s dominance in producing the material. “It’ll also depend on how much pressure China wants to put on foreign industries.”
The commerce ministry said its measures are a normal adjustment that don’t target any specific country or region, and that exports which comply with relevant regulations will be permitted. China exports graphite to countries including the US, South Korea and Japan.
James Lee, an analyst covering battery materials in Seoul at KB Securities Co., called the development “shocking.”
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“China used its last, strongest card for negotiation with the US, in terms of regulating the EV industry,” he said. The US could now reciprocate with its own measures, such as restricting the use of Chinese batteries in vehicles produced by Tesla Inc. Elon Musk’s firm operates a plant in Shanghai that accounts for more than half of the US company’s total output.
“We are looking into the effects, so I will avoid commenting on that. We will confirm the intent and management of the measures with China,” said Japanese Chief Cabinet Secretary Hirokazu Matsuno. “If they are unfair measures toward our country under the WTO and other international rules, we will respond appropriately under the rules.”
In August, China began restricting exports of gallium and germanium, two metals that are crucial for parts of the semiconductor, telecommunications and electric-vehicle industries. Exports resumed the following month.
