China’s Critical Mineral Processing Leverage Against Europe
Strategic question
Is strategic competition shifting from resource ownership to control of industrial processing?
Key Judgements
Geopol Lens assesses that China’s leverage is through dominance of critical mineral processing rather than extraction.
Current indicators suggest Europe is dependent on Chinese refining in the immediate term but is accelerating diversification efforts.
Competition over critical minerals is increasingly focused on industrial processing capacity rather than extraction alone.
Core assessment
China’s announcement that it would impose bans on 14 European companies suggests China’s leverage of critical mineral sanctions is expanding beyond previous disputes with the U.S. and Japan. The measures follow EU sanctions on companies based in China and Hong Kong accused of supporting Russia’s military-industrial complex.
Chinese sanctions could affect EU companies' ability to source critical minerals used in defence and civilian technologies such as drones, semiconductors for cars, rare earth magnets, wind turbines, and other advanced manufacturing. The inclusion of Rheinmetall, Germany’s largest defence contractor, highlights the potential for critical mineral supply chains to be part of national security in geopolitical competition.
Such measures indicate that critical mineral supply chains are becoming used globally as geopolitical leverage, shifting beyond traditional measures of tariffs and trade restrictions to industrial processing capacity.
Background
On July 18th the European Union announced a 21st sanctions package against Russia that included 14 companies based in China and Hong Kong linked to Russia’s military. China announced sanctions the following day on 14 European companies.
Strategic Assessment
China’s proposed critical mineral restrictions are likely to have downstream impacts. As the world's largest producer of rare earths, with approximately 70% of global rare earth mining and 90% of processing, the International Energy Agency has signalled USD 6.5 trillion of production could be at risk. Although the restrictions have yet to be fully implemented, the U.S. and Europe are likely to bear the greatest economic impact, with an estimated half of the USD 6.5 trillion total.
Defence and advanced manufacturing industries are likely to be negatively impacted if controls are implemented in November 2026. Industries manufacturing wind turbines, artificial intelligence hardware, electric vehicles, aircraft electronics, and weapons systems depend on rare earths, highlighting the risks these restrictions pose to civilian industry and national security. Prices will likely rise with reports of minerals yttrium and samarium being in short supply and prices increasing 100-fold.
Since China’s restriction decision in 2025, the U.S. and EU have accelerated efforts to diversify. Under the Critical Raw Materials Act (CRM Act), the EU commenced projects based in Europe focusing on various stages of the supply chain, including extraction, processing, manufacturing, and recycling. Other initiatives include the European Raw Materials Alliance to build rare earth magnet supply chain resilience, the RESourceEU initiative for joint purchasing and stockpiling, and diversifying suppliers through the CRM partnerships. As recently as November 2025, the European Commission announced an initiative to establish an EU critical minerals centre for the purpose of funding and purchasing CRMs.
The EU shift in policy indicates a recognition that European industries and defence remain exposed to critical mineral supply chain disruptions. Further, the EU could respond through anti-coercion measures or by restricting exports of chips used in aerospace and defence manufacturing. Given the impact on national security, defence policy may include funding that builds defence supply chain resilience or allied partnership agreements.
Diversification and building strategic autonomy through CRM supply chain resilience will require an integrated policy approach. To strengthen supply chains, the EU will need to incorporate industrial, trade, and defence policies to mitigate CRM shortages while also increasing domestic efforts to develop whole critical mineral value chains to counter China’s market dominance. China’s restrictions illustrate that the country is willing to utilise its dominance of critical mineral processing as an instrument of economic statecraft in response to geopolitical disputes, including sanctions on Chinese companies over alleged ties to Russia’s military-industrial complex.
What to Watch
Chinese rare earth licensing decisions impacting European companies.
China’s diplomatic statements on current or future sanctions.
EU investment in domestic critical mineral whole value chains.
Stockpiling of critical minerals by the EU and partners.
Diversification of suppliers by developing critical mineral partnerships.
EU anti-coercion measures in response to Chinese restrictions.
Inclusion of critical minerals in EU defence policy or as part of NATO defence spending.
Industrial impacts on EU defence, automotive, semiconductor, or renewable energy manufacturers.
Strategic Indicator
China’s Critical Mineral Leverage
Assessment ▲ Increasing
China’s decision to impose critical mineral sanctions on European companies indicates an expansion of the restrictions first announced in April 2025. The 2025 restrictions were introduced in response to U.S. tariffs, demonstrating China’s willingness to use its dominance of critical mineral processing as an instrument of economic statecraft. China previously imposed export restrictions on Japan in 2010, signalling how critical mineral supply chains could be used in geopolitical competition.
The expansion of China’s restriction on Europe suggests China increasingly views its dominance of critical mineral processing as a form of economic leverage. For countries dependent on Chinese processing, the restrictions highlight that critical mineral supply chains are becoming an industrial and national security risk.