China Launches Anti-Dumping Probe Against Japan Over Key Chip-Making Chemical

The China-Japan spat now seems to be accelerating by the day, with Tokyo warning in the aftermath of Tuesday’s dual use export curb announcement by China’s commerce ministry that the fresh action could “impact more than 40% of Chinese exports to Japan” - according to Bloomberg.

In unveiling its fresh punitive measures Tuesday, marking a serious escalation, a Chinese government spokesperson railed against Japanese Prime Minister Sanae Takaichi’s “erroneous” comments from last November where she suggested her forces could defend Taiwan in a future invasion by China.

“These comments constitute a crude interference in China’s internal affairs, seriously violate the one-China principle and are extremely harmful in nature and impact,” the statement said, followed by a warning that any entity or individual which violates the export ban will be held legally accountable. These new controls on ‘military-civilian’ dual use are likely to affect shipments of semiconductors and rare earth materials to Japan’s Self-Defense Forces and defense industry firms – which is without doubt the intent, and signals that greater punishment and damage could be further implemented at any time.

Within hours of Beijing unveiling these measures, Masaaki Kanai, secretary general of the Japanese Foreign Ministry’s Asian and Oceanian Affairs Bureau, had “strongly protested and demanded the withdrawal of these measures.”

Kanai conveyed the formal diplomatic protest to the Chinese embassy’s deputy chief of mission in Tokyo, Shi Yong. Kanai said the measures “deviate significantly from international practice, is absolutely unacceptable and deeply regrettable.”

But Beijing isn’t backing down, also after its sought-for formal retraction and apology from Takaichi has failed to materialize. Instead, Japan is bracing for continued incremental punitive measures. The latest includes China’s Commerce Ministry further announcing an anti-dumping probe into Japan Dichlorosilane imports. According to the new statement and press release:

China’s Ministry of Commerce announced on Wednesday that it has initiated an anti-dumping investigation into imports of dichlorosilane originating from Japan. Dichlorosilane is a chemical critical to the manufacture of semiconductor chips.

The investigation is not scheduled to conclude until January next year, and could be extended for an additional six months if deemed necessary, according to a ministry statement. On Tuesday, the ministry announced control measures on the export of dual-use items to Japan.

According to a ministry spokesperson, the investigation was initiated after requests by domestic manufacturers in China.

“The preliminary evidence submitted by the applicant indicates that from 2022 to 2024, the volume of dichlorosilane imported from Japan showed an overall increasing trend, with its cumulative price decline reaching 31 percent,” the spokesperson said.

But some analysts consider that there still a chance for de-escalation and walk-back, with Global risk consultancy Teneo describing that the lack of clarity in China’s announcement may be deliberate.

“The brief statement by China’s commerce ministry is vague, and the impact of the new measures could range from almost entirely symbolic to highly disruptive,” the consultancy said. “By triggering concern in Japan about the ongoing availability of critical Chinese industrial inputs, the announcement puts immediate pressure on Takaichi to offer concessions,” Teneo added.

“A plausible scenario is that the commerce ministry initially rejects a small handful of license applications, creating only minor supply-chain disruption but signaling potential for broader damage in future unless Tokyo takes conciliatory action.”

Bloomberg noted overnight that shares tied to rare earths rose across Asia-Pacific markets within the day after the announcement. It reviews that Tokyo trading, Toyo Engineering Corp – which develops technology to extract rare earths from the seabed – surged 20%. And Cerium producer Daiichi Kigenso Kagaku-Kogyo Co jumped as much as 27%. Australian-based companies surged as well, with Lynas Rare Earths Ltd climbing as much as 16%, its biggest gain since July, and Australian Strategic Materials Ltd advancing nearly 10%.

On Wednesday a fresh Bloomberg headline further noted: “The Japan-China squabble is causing some jitters after a strong start to the year for the region’s stocks.” It added: “The rally had also started to show signs of overheating. The 14-day relative strength index for the MSCI Asia Pacific Index climbed above 70 this week, entering technical overbought territory for the first time since early October.”

Despite the open question of just how the export controls will be implemented, China Daily has indeed confirmed that the restrictions will extend to rare earth-related products.

China had already been steadily retaliating through measures related to curbing trade, cultural exchanges, and tourism – coupled with threats of more punitive action to come. There have lately been some serious military ‘close calls’ as well.