Unveiling China's Secret Move: How Graphite Export Restrictions Intensify a Global Tech Battle

CNN's Meanwhile in China newsletter is a valuable resource for understanding the country's rise and its global impact. In the latest update, it was announced by the Ministry of Commerce and the General Administration of Customs that China intends to limit the exportation of graphite, a mineral that plays a vital role in the production of electric vehicle batteries. This decision is based on national security considerations.

Following the recent imposition of stricter limitations on the semiconductor exportation from the United States to Chinese companies, this announcement has arrived within a few days.

Stefan Legge, the head of tax and trade policy research at the University of St Gallen in Switzerland, stated, "Currently, China and Western nations are involved in a reciprocal retaliation, showcasing the widespread nature of protectionist measures. Newton's third law, which states that every action brings about a reaction, is applicable here as well."

Simultaneously, both opposing factions acknowledge the expensive consequences of prioritizing geopolitical interests over economic ones, as stated by the source. China, renowned for its extensive control over global graphite production and processing, has announced that export licenses will be compulsory from December onwards. These permits will encompass synthetic graphite, including variants of high-purity, high-strength, and high-density compositions, as well as natural flake graphite.

Carmakers are seeking to secure graphite supplies from non-Chinese sources, as the demand for EV batteries surpasses the material's other applications, says the Institute for Energy Research, a research organization based in Washington, DC. The International Energy Agency reports that worldwide sales of electric vehicles, encompassing both battery-powered and hybrid vehicles, are experiencing substantial growth.

Sales soared to over 10 million units in the previous year, marking a significant 55% surge from 2021. An impressive increase is expected this year, with sales projected to reach nearly 14 million vehicles.

As per the US Geological Survey, the global market for graphite utilized in batteries has witnessed a substantial 250% growth since 2018. China, being the leading graphite producer worldwide, contributed approximately 65% to the global production last year.

Besides EVs, graphite is commonly used in the semiconductor, aerospace, chemical and steel industries.

Gallium, germanium restrictions

China's export restrictions come amid mounting international scrutiny of its business and trade practices. The country has been locked in a protracted technological conflict with the United States, Europe, and Asia, centered on securing advanced chips and chipmaking machinery. In an effort to exert control, Beijing introduced export limitations on gallium and germanium, vital minerals for semiconductor production, resulting in a complete halt of overseas shipments within a month.

According to Ivan Lam, a senior analyst at Counterpoint Research, China had previously enforced temporary export controls on graphite, but it had minimal impact on the industry. He mentioned that the recent rules do not amount to a complete ban; nevertheless, he foresees an increase in prices. Lam stated, "We anticipate the average price of graphite to persistently rise in the coming years due to supply and demand imbalances, including the impact of the Russia-Ukraine war on Russia, which was a significant graphite supplier."

According to the US Department of Energy, China has a dominant position in the global supply chain of crucial minerals required for manufacturing EV batteries. It is responsible for refining 60% of the world's lithium and 80% of the cobalt.