European Rearmament Efforts Snuffed By Chinese Control Of Critical Materials

Yesterday we reported that, in a tit-for-tat move, China announced it is targeting US rare earths firms in response to a Pentagon list of Chinese firms: this, as Rabobank noted, is largely a symbolic move, but it still underlines the tensions in this area. So does the Nikkei reporting that ‘China minerals control threatens EU rearmament, as bloc seeks new sources’: because, as Rabo's Michael Every notes, even if you can afford a dagger, you can’t make it without rare earths, and Europe still hasn’t secured enough supply. 

Taking a closer look at the report, Nikkei writes that the European Union's aggressive plans to boost defense capabilities are hampered by China's export controls and sales restrictions on critical raw materials, with the bloc's leaders now calling on countries to accelerate the diversification of their supply chains.

The European Commission last week said that it will propose a new law that will require companies in the bloc to expand their suppliers to address economic imbalances, although it did not name China.

Russia's war in Ukraine and growing uncertainty over Washington's security guarantees have pushed governments in Europe to increase military spending and production. But for 17 of the 34 materials classified as critical by the EU, China accounts for at least 70% of global mining or refining, a report published by Teer in May shows. Eight of those 34 materials are subject to Chinese export controls.

"China is in the process of pulling the rug out from under Europe's rearmament efforts," said Joris Teer, a policy analyst at the EU Institute for Security Studies (EUISS), the bloc's agency for foreign, security and defense policy analysis.

"By just deploying this weapon, China has already increased its leverage, signaling both its capacity and willingness to squeeze supply at any moment of its choosing," Teer wrote.

Escalating geopolitical developments and intensifying global competition for critical raw materials underline the growing need to strengthen Europe's supply chains, said the Aerospace, Security and Defence Industries Association of Europe. The organization represents over 4,000 companies including the U.K.'s BAE Systems, France's Thales and Germany's Rheinmetall.

European defense manufacturers are pursuing several strategies including vertical integration, recycling, diversification and stockpiling. Rheinmetall told Nikkei Asia it had "no dependencies" and was "well prepared with regard to critical minerals."

"Rheinmetall has stored key raw materials, enough to last for several years," a spokesperson said. "We have implemented IT systems that enable us to centrally monitor and control raw material consumption across the group with precision."

But analysts warn that stockpiling alone will not be enough.

"Stockpiling is an important buffer against immediate disruptions, but on its own it is unlikely to reduce structural damage over the long term," said Maria Shagina, senior fellow at the International Institute for Strategic Studies. She said it would take years for alternative sources to replace either the volumes or the range of critical minerals that Beijing controls.

In 2024, the EU introduced the European Critical Raw Materials Act, aimed at rebuilding domestic supply chains for such minerals. It sets 2030 targets for domestic extraction, processing and recycling, while capping reliance on any single third-country supplier at 65%. A 3 billion-euro ($3.5 billion) fund was launched last year to accelerate strategic projects.

But the European Court of Auditors notes that the 2030 targets are nonbinding and that the bloc remains far from achieving them. Industry groups say policy inconsistencies could slow progress further.