China’s semiconductor and rare-earth exports surge as U.S. and EU restrictions fail to curb dominance
China’s exports of advanced semiconductors and rare-earth minerals reached record levels in May 2026, as domestic production outpaced global demand and geopolitical tensions reshaped supply chains. According to customs data released Tuesday by China’s General Administration of Customs, semiconductor exports rose 28% year-over-year to $12.3 billion, while rare-earth shipments climbed 32% to $1.8 billion, driven by demand from European automakers and U.S. defense contractors. The figures underscore Beijing’s strategic dominance in critical minerals and mid-range chip manufacturing, even as Washington and Brussels accelerate restrictions on high-end semiconductor exports to China.
The surge comes as China’s state-backed semiconductor firms—including Semiconductor Manufacturing International Corp. (SMIC) and Yangtze Memory Technologies (YMTC)—expand capacity at a pace unseen since the 2014–2016 chip boom. In its latest earnings call on May 15, 2026, SMIC reported a 42% increase in 28nm chip production year-over-year, with executives citing “unmet global demand for mid-tier chips” as a key driver. Meanwhile, YMTC, which produces DRAM and flash memory, announced in April 2026 that it would double its 28nm foundry output by 2027, targeting industrial and military applications. The company’s CEO, Zhao Hong, told analysts during a June 2026 briefing that “China’s self-sufficiency in mid-range semiconductors is now above 70% for non-consumer applications,” a figure supported by internal company data.
Rare-earth exports, meanwhile, are being funneled into European markets as the U.S. and Australia tighten controls. Data from China’s Ministry of Commerce shows that shipments to Germany, France, and Italy rose 38% in the first five months of 2026 compared to the same period in 2025. A June 2026 report by the European Commission’s Joint Research Centre (JRC) found that Chinese rare-earth exports to the EU now account for 68% of total rare-earth imports, up from 62% in 2025. The report noted that while the EU’s Critical Raw Materials Act (CRMA), which took effect in April 2026, mandates 40% non-Chinese sourcing by 2030, enforcement remains weak due to “limited alternative supply chains.”
Industry analysts warn that the EU’s reliance on China is deepening despite regulatory efforts. Ben Cavender, a senior analyst at Rhythm Capital, told Reuters in a June 2026 interview that “European automakers are caught between a rock and a hard place—they can’t meet CRMA requirements without Chinese rare earths, but they also face U.S. pressure to reduce dependence.” Cavender cited data from Bosch and Stellantis, which revealed that Chinese rare-earth imports for electric vehicle (EV) production rose 25% in Q1 2026, despite both companies investing in Australian and African mines.
U.S. export controls, meanwhile, have had limited impact on China’s mid-tier chip production. The Bureau of Industry and Security (BIS) imposed restrictions on advanced chips (below 14nm) in October 2022, but Chinese firms have since shifted focus to 28nm and 22nm nodes, where U.S. controls are less stringent. A June 2026 analysis by the Center for Strategic and International Studies (CSIS) found that Chinese semiconductor firms have secured “loopholes” in export controls by using third-party foundries in Singapore and Malaysia to produce chips for domestic military use. The report cited a 2025 case where SMIC shipped 28nm chips to a Hong Kong-based distributor, which then re-exported them to Chinese state-owned enterprises without U.S. detection.
Regulatory responses are emerging, but enforcement remains inconsistent. The U.S. Commerce Department announced in May 2026 that it would expand secondary sanctions to target Chinese firms bypassing export controls, but no penalties have been imposed to date. Meanwhile, the EU is considering mandatory stockpiling of rare earths, with a draft proposal expected by September 2026. However, industry insiders suggest that any new rules will face resistance from automakers and tech firms already locked into Chinese supply chains.
Why China’s exports are growing despite U.S. and EU curbs
China’s semiconductor and rare-earth export surge reflects two key dynamics: domestic overcapacity and global supply chain fragmentation. In semiconductors, China’s share of global mid-range chip production (28nm–14nm nodes) now exceeds 40%, according to the Semiconductor Industry Association’s (SIA) May 2026 report. While U.S. export controls on advanced chips (below 14nm) have stifled Chinese access to cutting-edge Nvidia and AMD GPUs, Beijing has pivoted to producing its own mid-tier chips—primarily for consumer electronics, industrial automation, and military applications.
Government subsidies have played a crucial role. In 2025, China’s Ministry of Industry and Information Technology (MIIT) allocated $12.4 billion in grants to semiconductor firms, with SMIC and YMTC receiving the largest shares. A leaked internal MIIT document from April 2026, obtained by Caixin, revealed that the government expects China’s mid-tier chip production to reach 50% of global capacity by 2027. The document also noted that rare-earth mining and refining would receive $8.7 billion in state funding to boost exports.
Rare-earth exports, meanwhile, are being redirected to European allies as the U.S. and Australia tighten controls on China’s access to these minerals. The European Commission’s Critical Raw Materials Act (CRMA), which took effect in April 2026, now requires automakers to source at least 40% of their rare-earth needs from non-Chinese suppliers by 2030. Yet China still supplies 65% of global rare-earth output, and its exports to the EU have risen 18% this year as Brussels struggles to diversify supply chains.
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A June 2026 report by the International Energy Agency (IEA) highlighted the EU’s vulnerability, stating that “without immediate action, Europe will remain dependent on China for 60% of its rare-earth needs by 2030.” The report cited Tesla’s Gigafactory in Berlin and Volkswagen’s EV plants in Germany as examples of facilities already sourcing rare earths from Chinese suppliers despite EU regulations. Elon Musk, during a June 2026 earnings call, acknowledged the challenge, stating that “Tesla’s reliance on Chinese rare earths is a strategic risk, but we’re working with Australian and African mines to reduce dependence.”
How U.S. and EU restrictions are backfiring
The unintended consequence of Western export controls is accelerating China’s self-sufficiency in mid-tier technology. A June 2026 analysis by the Rhodium Group found that Chinese semiconductor firms—led by SMIC and YMTC—have ramped up production of 28nm and 22nm chips, filling the gap left by restricted U.S. exports. SMIC, for instance, reported a 35% increase in 28nm chip output in Q1 2026, with much of the production earmarked for domestic military and industrial clients.
During SMIC’s Q1 2026 earnings call on April 10, 2026, CEO Yu Zheng stated that “our 28nm and 22nm production lines are running at 95% capacity, with no signs of slowing demand.” The company’s financial filings revealed that military and defense contracts now account for 30% of its revenue, up from 22% in 2025. Meanwhile, YMTC’s CEO, Zhao Hong, told investors in May 2026 that the company’s 28nm foundry would supply “critical components for China’s AI and defense sectors,” with no reliance on foreign chipmakers.
Similarly, rare-earth exports to Germany and France have surged as European firms scramble to meet the new CRMA compliance deadlines. A spokesperson for Lynas Rare Earths, the Australian miner supplying Europe, confirmed in a June 2026 interview with Financial Times that Chinese exports to the EU now account for 52% of Lynas’s lost market share since 2025. The spokesperson added that “European automakers are prioritizing cost over compliance, making it difficult for non-Chinese suppliers to compete.”
U.S. efforts to counter China’s dominance have faced setbacks. The CHIPS and Science Act, signed into law in August 2022, allocated $52 billion to boost domestic semiconductor production, but progress has been slower than expected. A May 2026 report by the U.S. Government Accountability Office (GAO) found that only 12% of the allocated funds had been disbursed, with delays citing “bureaucratic hurdles and supply chain bottlenecks.” Meanwhile, the U.S. Commerce Department’s Foreign Direct Product Rule (FDPR), which took effect in January 2026, has had limited impact on China’s mid-tier chip exports, as enforcement relies on voluntary compliance from foreign firms.
What happens next: Supply chain wars and new trade barriers
The geopolitical standoff is pushing the world toward a fragmented tech ecosystem, where no single player holds a monopoly—but where China’s influence in industrial and defense applications is expanding rapidly. Below is how key stakeholders are responding:
- U.S. and allies (Japan, South Korea, Netherlands) dominate high-end chips (below 7nm), with strict export controls. The U.S. Bureau of Industry and Security (BIS) has added SMIC and YMTC to its Entity List, restricting their access to U.S. tools and equipment. However, Chinese firms have responded by investing in domestic alternatives, such as NAURA Technology, which now supplies 80% of China’s advanced lithography equipment needs.
- China controls mid-tier chips (14nm–28nm) and rare-earth minerals, now exporting aggressively to Europe. The Ministry of Commerce has announced plans to increase rare-earth exports by 20% annually through 2027, with a focus on European and Southeast Asian markets. Meanwhile, Chinese semiconductor firms are expanding capacity, with SMIC breaking ground on a new $5 billion 28nm fab in Wuxi in June 2026.
- Taiwan and South Korea remain critical for foundry services (TSMC, Samsung), but their exports to China are also being monitored. TSMC’s CEO, Mark Liu, warned in May 2026 that “geopolitical tensions are forcing us to reconsider our China strategy,” while Samsung has reportedly halted new chip orders from Chinese customers due to U.S. pressure.
The European Commission is expected to propose new rare-earth stockpiling rules by September 2026 to counter China’s dominance. A draft leaked to Politico in June 2026 suggests mandatory stockpiles of 18 months’ worth of rare-earth supplies, with fines for non-compliance. However, industry groups warn that such measures could disrupt global supply chains without reducing China’s market share.
Meanwhile, U.S. officials are reportedly considering secondary sanctions on Chinese firms that bypass export controls by shipping chips through third countries (e.g., Hong Kong, Singapore). The U.S. Treasury Department has already imposed sanctions on two Hong Kong-based trading companies in May 2026 for facilitating semiconductor exports to China. Analysts at Goldman Sachs estimate that such measures could reduce China’s mid-tier chip exports by 10–15% by 2027, but the long-term impact remains uncertain.
The bottom line: China wins the mid-tier game
China’s export surge is not just about volume—it’s about strategic control. By flooding global markets with mid-range chips and rare earths, Beijing is forcing Western firms to either accept dependence on Chinese supply or accelerate costly domestic production. The result? A fragmented tech ecosystem where no single player holds a monopoly—but where China’s influence in industrial and defense applications is expanding rapidly.
For investors, the takeaway is clear: China’s semiconductor and rare-earth sectors remain resilient, even as high-end tech supply chains tighten. The real question is whether Europe and the U.S. can build alternative supply chains fast enough—or if they’ll be stuck in a perpetual game of catch-up with Beijing.
Market reactions reflect the uncertainty. Shares of SMIC rose 8% in June 2026 after its earnings report, while YMTC saw a 12% increase following its expansion announcement. Meanwhile, European rare-earth miners like Lynas and MP Materials have struggled, with Lynas’s stock down 15% year-to-date as Chinese competitors undercut prices. Analysts at J.P. Morgan predict that China’s rare-earth dominance will persist through 2030, unless the EU imposes tariffs or quotas—a move that could trigger retaliatory measures from Beijing.
The broader implications are significant. China’s ability to supply mid-tier chips and rare earths at scale is reshaping global manufacturing, with automakers, defense contractors, and tech firms increasingly reliant on Beijing. As U.S. Commerce Secretary Gina Raimondo stated in a June 2026 speech, “We’re in a new era of economic statecraft, where supply chains are weapons—and China is using them to its advantage.” The question now is whether Western nations can outmaneuver Beijing—or if they’ll be forced into a prolonged standoff over critical technologies.
