China imposes restrictions on graphite exports

China has responded swiftly to escalating tensions with the United States in the ongoing technology war. The American government recently implemented tougher export controls on high-powered semiconductors, prompting China to impose new restrictions on the export of Chinese graphite. This move aims to prevent Chinese companies from circumventing the rules and underscores China’s readiness to engage in the battle for technological dominance.

The original US controls limited the sale of cutting-edge chips used in artificial intelligence (AI) development to Chinese entities, while allowing Chinese companies to purchase less powerful integrated circuits that could be combined for greater processing power. However, concerns arose that Chinese companies were finding ways to bypass the restrictions, leading to the tightening of controls. The revised restrictions target broader performance measures, making it more difficult for Chinese firms to combine less advanced chips into a more powerful whole. For example, Chinese companies can no longer purchase Nvidia’s A800 and H800 chips as substitutes for the cutting-edge A100 chips.

China has also strategically used graphite as an economic weapon. Although graphite may seem mundane, its use in the anodes of lithium-ion batteries makes it critical to decarbonization plans globally. Since Chinese firms refine about 90% of the world’s graphite, China holds significant leverage in this economic conflict. China has been experimenting with graphite as an economic weapon since 2020, imposing an informal ban on selling graphite to Sweden following a diplomatic dispute. The recent restrictions on the export of high-grade graphite products are more formal and comprehensive, requiring exporters to hold licenses. This approach allows China to continue selling graphite abroad while giving authorities the ability to selectively target buyers, making it their preferred tool in this economic warfare.

The escalating economic conflict between China and the US has also resulted in collateral damage. A Japanese businessman working for a Japanese firm has been formally arrested on spy charges, and Chinese state media announced an investigation into Foxconn, a Taiwanese company assembling iPhones for Apple, for possible tax and land-use violations.

China’s leaders appear to be preparing for further technological war escalation. China’s potential strategies include building a global network of companies to evade sanctions and issuing gold-backed bonds to maintain connections with the global economy. These preparations indicate that China anticipates more challenging times ahead.

Source: The Economist