Author: Satoshi Sugiyama and Rocky Swift
TOKYO, Jan 7 (Reuters) – Japan’s top government spokesman said on Wednesday that China’s decision to ban the export of dual-use items to the country was “absolutely unacceptable and deeply regrettable” as a diplomatic spat between Asia’s two largest economies intensified.
Dual-use items refer to goods, software or technology that have both civilian and military uses, including certain rare earth elements necessary to make drones and chips.
Japanese Prime Minister Sanae Takaichi sparked a row with Beijing late last year, saying China’s attacks on democratically governed Taiwan could be seen as an existential threat to Japan. China considers Taiwan part of its territory, which Taiwan denies.
Beijing asked her to retract her remarks, but she failed to do so, triggering a series of countermeasures, the latest of which was a ban on exports of dual-use items on Tuesday.
“Such measures that only target our country are very different from international practice and are absolutely unacceptable and deeply regrettable,” Japan’s Chief Cabinet Secretary Minoru Kihara told a daily news conference on Wednesday.
He declined to comment on the impact this might have on Japanese industry, saying it was unclear exactly which projects would be targeted.
Although Japanese stocks were lower on Wednesday, the market reaction to the news was relatively muted, bucking a global trend that has seen U.S. and European benchmarks hit record highs.
Japan’s Topix stock index fell 0.55%, with the mining sub-index leading the decline, falling 3.2%.
Are rare earth restrictions next?
China Daily, a newspaper owned by China’s ruling Communist Party, reported on Tuesday that Beijing was considering tightening licensing reviews of Japan’s rare earth exports more broadly, citing people familiar with the matter.
Analysts said the move could have wide-ranging implications for the manufacturing powerhouse, including its key automotive industry.
Although Japan has been seeking to diversify its rare earth supplies since China last restricted rare earth exports in 2010, about 60% of its imports still come from China.
Nomura Research Institute economist Takahide Kiuchi said in a report on Wednesday that a three-month restriction on China’s rare earth exports, like the one in 2010, could cost Japanese companies 660 billion yen ($4.21 billion) and reduce annual gross domestic product by 0.11%.
He added that a one-year ban would reduce GDP by 0.43%.
So far, Chinese customs data has shown no sign of a decline in rare earth exports to Japan, although there has been some delay in releasing the data. In November, the latest month for which data are available, exports rose 35% to 305 tonnes, the highest level recorded last year.
(1 USD = 156.6800 yen)
(Reporting by Satoshi Sugiyama, Kantaro Komiya, Tim Kelly and Rocky Swift in Tokyo; Liz Lee and Lewis Jackson in Beijing; Writing by John Geddie; Editing by Michael Perry)
