China sanctions 56 US defense, rare earth firms
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- China's Ministry of Finance barred government procurement entities from buying products from 46 US defense contractors—led by Lockheed Martin and Raytheon Missiles & Defense—with restrictions effective immediately but exempting US-funded enterprises operating inside China.
- China's Commerce Ministry added 10 US entities to its export control list under China's Export Control Law, including rare earth miners MP Materials and USA Rare Earth, plus drone and defense electronics makers Red Cat Holdings, Teal Drones, and Ball Aerospace & Technologies Corp.
- Beijing's retaliation follows the Pentagon's June 8 expansion of its Chinese military-company list from 134 to 188 entities, which swept in civilian tech firms Alibaba, BYD, and Baidu, and comes weeks after Trump's May 14-15 summit with Xi Jinping that both sides described as productive.
- Chinese commentators say the measures are calibrated to hit America's rare-earth supply chain—cutting off MP Materials and USA Rare Earth's access to processed materials, separation products, and magnet precursors that cannot be quickly replaced—while sparing US companies with commercial operations in China.
- Some analysts counter that the measures are largely symbolic: the 10 blacklisted firms have little need to source raw materials from China, and Chinese government agencies had already largely stopped purchasing American defense products.
- Foreign direct investment into China fell 8.6% year-on-year to 327.29 billion yuan (US$45.3 billion) in the first five months of the year, adding pressure on Beijing to avoid deterring foreign capital with its retaliatory measures.
Why it matters: China's export ban directly targets MP Materials and USA Rare Earth—America's flagship efforts to rebuild its critical-mineral supply—cutting off processed rare earth materials and magnet precursors that cannot be easily substituted. Beijing simultaneously exempted US firms with Chinese operations from its procurement ban, a calibrated split designed to punish defense and rare-earth sectors while preserving leverage over foreign investors at a time when FDI into China has already dropped 8.6% year-on-year.
