China’s Semiconductor Gambit: How Control of Critical Materials Became a Tool of International Power Assertion

Introduction

In the last few years, China has quietly built an economic empire upon the extraction of minerals and metals. Today, Chinese mining and processing facilities account for an overwhelming majority of all global rare earth mining and processing capacity of critical components such as Allium or Germanium. These elements have become an invisible foundation of our modern global economy. Not because they are rarely found in nature, which their name mistakenly alludes to, but because they act as indispensable building blocks to sustain all the key modern technologies that run our global economy, such as semiconductors, electric vehicles, fiber optics, and even our most advanced defense systems. Today, Beijing holds a de facto monopoly over these elements, making the control and acquisition of rare earths one of the most consequential sources of China’s leverage in global politics. 

From Resource Dominance to Strategic Weaponization 

China’s grip on rare earths and other related materials is no accident. It’s the result of a very successful industrial policy experiment, which eventually evolved into an unexpected asset to project technological sovereignty. 

Since the 1980s, Beijing has viewed the resource extraction and processing of rare earth metals as a cornerstone of its national strategy towards industrial modernization. Decades of state support through public incentives, coupled with a blind sighted environmental leniency, gave the country an overwhelming lead in controlling this sector. In 2025, China was responsible for mining about 60% of all the world’s rare earths and processing roughly 90% of them – a level of concentration that makes it the indispensable hub of the global supply chain. 

European leaders had been quickly growing wary of this quasi-monopoly. European Commission President Ursula von der Leyen warned policymakers and politicians that China was on the path of weaponizing its overreaching control of rare earth extraction and processing to pressure competitors and disrupt key industries. She noted that the world had already seen this pattern before. In 2010, China had already flirted with its control of rare earths distribution chains when it decided to temporarily halt the exports of rare earths to Japan, triggering a tenfold surge in global prices.

But this time the scale was far greater. When the United States decided in 2023 to unilaterally restrict the exports of advanced chips and lithography equipment to China, Beijing responded similarly. Chinese authorities started imposing export controls on gallium and germanium, two essential metals for producing high-performance semiconductors and fiber optic systems. 

The escalation then worsened. In April 2025, after the Trump administration decided to raise tariffs on Chinese goods, Beijing extended its restrictions to key rare earth elements such as neodymium magnets and oxides, vital for electric-vehicle motors and wind turbines. According to Reuters, within weeks, shipments of these magnets had plunged by about 75% year-on-year, considerably disrupting day-to-day operations in many industries. The European Central Bank later revealed that the biggest impact had been inflicted on several European car manufacturers, which were forced to halt production because of material shortages. 

By October 2025, Beijing had doubled down. Export licences were now being required for 12 of the 17 rare-earth elements, including heavy metals like holmium and europium. Even the equipment used for refining them was placed under restriction, and foreign firms were required to explain the final use of the materials they purchased. Beijing justified these measures on national-security grounds, citing the dual civilian–military applications of rare earths. Yet few doubted that the timing and scope of the measures were politically motivated.

Building the Great Silicon Wall 

While Beijing has been tightening control over outflows of almost all rare earth elements, it has also accelerated its efforts towards becoming self-reliant in advancing the local manufacturing of advanced semiconductors. 

Since the United States blocked exports of high-end AI accelerators such as NVIDIA’s A100 and H100 chips, a feeling of urgency started to gain traction in Beijing. Today, the Chinese authorities' goal is to triple their domestic AI chip output in 2026.  This is possible through unconditioned state support of key national conglomerates led by Huawei, one of China's key technological conglomerates already the target of wide Western sanctions and restrictions, and SMIC, China’s largest and most advanced semiconductor foundry. 

At the same time, Huawei is building new semiconductor fabrication plants, while SMIC is doubling its capacity to manufacture at scale 7-nanometer chips, which support high-scale computing of AI models.  

Yet while progress is considerable, SMIC finds itself years away from competing directly with industry leaders such as Samsung or TSMC. This is why, according to the Mercator Institute for China Studies (MERICS), China’s ‘Big Fund’, a state-backed investment vehicle, has started to channel billions into chip design, lithography, and materials production in a push to accelerate the closing of the technology gap with the West.  

Challenges remain formidable. Advanced chips require precision tools, above all, the extreme ultraviolet lithography machines produced exclusively by ASML in the Netherlands, which are off limits under Western export controls. Still, Chinese engineers have shown resilience. SMIC has managed to produce near-seven-nanometre chips using older deep-ultraviolet equipment, proving that innovation under constraint is possible.

This dual track, composed of both restricting the outbound flow of key rare earth material while simultaneously expanding domestic capacity, reflects a coherent and long-term strategy. Beijing seeks to both shield itself from foreign sanctions while hoping to gain offensive leverage over its rivals by profiting from its monopoly of global rare earth supply chains.

Europe’s Race for Technological Sovereignty

Europe has been at the forefront of these global supply chain shockwaves and has fully experienced the brunt of the export volatilities of rare earth minerals. The European Central Bank estimated in 2025 that all European countries combined relied on China for roughly 70% of their rare-earth imports. Nearly 80% of large European manufacturers are no more than 3 steps removed from a Chinese supplier. In addition, the semiconductor imbalance is also considerably stark. Europe consumes about 16% of the world’s chips but produces only 10%, and none at the most advanced nodes. So, when Beijing tightens export rules, disruptions cascade rapidly across European value chains, from automotive assembly lines to wind-turbine factories. Recent shock waves derived from China’s material controls have been the decisive factors in galvanizing Europe’s drive for strategic autonomy. 

The European Chips Act, adopted in 2022, was the first one. It dedicates over €43 billion to doubling Europe’s share of global semiconductor production to 20% by 2030. With the help of industry leaders in semiconductor manufacturing, such as Intel and TSMC, European policymakers hope to encourage these companies to bring their know-how to European soil, notably by investing resources in building local mega factories of semiconductors. Yet, as the Wilson Center notes, even this effort may only maintain Europe’s existing global share, since worldwide chip demand is growing faster than new capacity can come online.

In parallel, Brussels has also advanced the Critical Raw Materials Act (CRMA), which is designed to diversify supply sources and curb over-reliance on any single country. The European Commission’s Single Market Directorate described this initiative as critical in promoting ‘Europe’s insurance policy against coercion’. The law sets binding targets: by 2030, at least 10% of the EU countries' annual consumption of critical minerals must come from domestic mining, while 40% from EU-based refining, and 25% from recycling. In addition, a clause clearly states that no more than 65% of any key material may originate from one country, a thinly veiled reference to China. Implementation is already underway at the state level. Estonia and France have just opened new rare-earth separation facilities. Other member countries, such as Germany, are commissioning recycling plants for extracting magnet metals. On the other hand, the EU has simultaneously started to sign partnerships with resource-rich countries such as Australia, Canada, and Namibia to diversify its supply chain as quickly as possible. 

The Broader Shift: From Globalization to Techno-Nationalism 

This unfolding contest over rare earths extraction and processing is more than a traditional trade dispute. It represents the unravelling of the globalized supply chain order that had defined our last three decades of international trade flows. Nations are now recognising that key sectors of manufacturing and industrial production should be reorganised around security priorities rather than pure economic efficiency. 

Everyone just decides to name it with different terms. The United States calls it ‘friendly reshoring’, while Europe prefers the term ‘de-risking’. China, on its part, calls it by its truer meaning: ‘self-reliance’. But regardless of the terminology, one thing is clear. The concepts of industrial and political power have never converged so close to one another. 

For Europe, the lesson is particularly sobering. The celebrated Brussels Effect, which refers to the EU’s ability to export its regulatory standards worldwide, is just empty words unless it becomes more dependent on the Bloc’s ability to grasp more technological substance. This feeling is amplified more and more by civic group organizations like Stand Up for Europe, which have already observed since 2024 that if Europe cannot enforce ethical norms on systems it is impossible to comprehend or build. This implies that without a strong manufacturing and innovation base, Europe risks becoming a rule-taker without the means to implement its own vision of technological sovereignty.

Conclusion: A Mirror and a Warning 

China’s actions have held up an uncomfortable mirror to the West, revealing that industrial capability, not just simple regulation, can determine strategic autonomy. By fusing control of raw materials alongside an aggressive semiconductor import substitution strategy, Beijing has built both a shield and a sword, defending its own supply chains while pressuring others. For Europe, the wake-up call has become unmistakable. The Chips Act and the CRMA have marked the beginning of this new phase of industrial realism, which treats technological sovereignty as a precondition for political sovereignty.

But time is short. Unless Europe turns these policies into concrete actions on the ground, such as new factories, refineries, and state-of-the-art research hubs, before the next supply chain shock, European member states risk remaining spectators in a world shaped by those who make, and not merely regulate, the technologies defining our future. 

The views expressed in this article belong to the author(s) alone and do not necessarily reflect those of European Guanxi.

ABOUT THE AUTHOR

Giancarlo di Rovasenda is an Italian specialist in Political Economy and European affairs, with a multidisciplinary background spanning international cooperation, technology governance, and entrepreneurship. His research focuses on innovation policy and the strategic dimensions of Europe–China relations, with particular attention to how technological capabilities shape global power dynamics. He has worked in public affairs at the French Consulate in San Francisco, in digital transformation with IBM Consulting in Paris, and in policy engagement at the European Chamber of Commerce in China. Giancarlo holds a Master’s in European Affairs from Sciences Po Paris and a Master’s in International Management from Peking University HSBC Business School.

This article was edited by Kai Moreno Momiejo and Susanna Aghajanyan

Featured Image: Tom Fisk / Free for use / Pexels