China has demanded specific guarantees from India that heavy rare earth magnets supplied by Chinese firms will be used exclusively for domestic needs and not be re-exported to the United States, as the two countries negotiate the resumption of critical shipments. According to officials cited in recent reports, Indian companies have already submitted end-user certificates affirming the magnets won’t be used to manufacture weapons of mass destruction and will only be utilized for local industry. However, Beijing is insisting on further export control assurances similar to those under the Wassenaar Arrangement, which governs transparency in transfers of dual-use technologies; India is a member, though China is not. As a result, supplies of heavy rare earth magnets to India remain suspended, with negotiation efforts ongoing to reach a mutually acceptable framework.
Strategic Resource Rivalry Escalates:
China currently dominates the global supply chain for heavy rare earths, controlling approximately 90% of world production and processing capacity for magnets vital to electronics, renewable energy, electric vehicles, aerospace, and defense manufacturing. This leverage has allowed Beijing to tighten its grip on rare earth exports, aiming to prevent strategic resources from fueling U.S. industry amid ongoing trade and technology friction. Since April 2025, China has imposed new restrictions on medium and heavy rare earth shipments and processing technology, citing national security concerns and retaliatory tariff measures from the United States. Despite limited resumption of exports to Europe and Southeast Asia, India’s requests for licenses to import remain on hold pending further diplomatic dialogue.
Impact on Indian Industry and Supply Chains:
India’s industry has been considerably affected by the shortage of heavy rare earth magnets, with direct consequences for the production of motors in electric three-wheelers, cars, and buses. Indian import statistics show procurement of 870 tonnes of rare earth magnets valued at ₹306 crore for FY25, highlighting the importance of secure supply lines for the domestic market. Executives and government officials have acknowledged the operational delays and cost increases resulting from China’s ongoing export controls, emphasizing the urgent need to establish supply chain independence or alternative sourcing arrangements. Some companies have already provided additional assurances, backed by the commerce ministry, to fulfill Beijing’s requirements, but official acceptance is yet to be confirmed.
Domestic Magnet Manufacturing:
India’s efforts to achieve self-sufficiency in rare earth magnet production have gained momentum following supply chain disruptions due to China’s export restrictions. In FY25, the country imported approximately 53,700 tonnes of rare earth magnets, with over 90% originating from China. Recognizing the strategic importance of these magnets for industries such as automotive, clean energy, electronics, and defense, the government is rolling out a ₹7,300 crore incentive scheme to support domestic manufacturing, targeting an annual output of 6,000 tonnes by 2030 and encouraging both public and private sector participation. Several firms have already committed to building oxide-to-magnet processing facilities, and public sector units like IREL are refining rare earth oxides, though further advancements in alloy and magnet manufacturing are needed. By boosting local capacity, India aims to mitigate future supply risks and align its industrial base with global clean technology goals.
Technology Rivalry and Defense Concerns:
China’s latest move to demand strict end-use assurances from India comes as President Xi Jinping and U.S. President Donald Trump prepare to meet at the APEC summit in South Korea later this month, potentially influencing broader rare earth supply chain agreements. The Chinese Ministry of Commerce has clarified that export licenses will not be granted to overseas defense users, with semiconductor-related applications considered on a case-by-case basis. In the face of escalating international tensions, this strategy indicates Beijing’s desire to strengthen critical resource exports. Analysts expect long-term effects on rare earth-dependent companies, particularly in the defense and technology sectors, in the United States, Europe, Japan, and India.
