(Adds dropped word to headline)

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China introduced new rare earth export controls in April

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Export permits must be approved by bureau in Commerce

Ministry

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Staff levels were only recently boosted to 60, sources say

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Slow pace of approvals hitting the auto industry worldwide

By Laurie Chen and Lewis Jackson

BEIJING, June 5 (Reuters) - In a hulking grey building

just east of Tiananmen square in Beijing, a small team in

China's Ministry of Commerce is deciding the fate of the global

auto industry, one rare earth magnet export permit at a time.

China holds a near-monopoly on rare earth magnets - a

crucial component in electric vehicle motors - and it added them

to an export control list in April as part of its trade war with

the United States, forcing all exporters to apply to Beijing for

licenses.

It falls to the Bureau of Industrial Security and Import and

Export Control - which is part of China's Ministry of Commerce -

to review export permits for the rare earth magnets, which are

vital for car motors, wind turbines and even U.S. F-35 fighter

jets.

While dozens of licences have been issued since late April,

executives, lobbyists and diplomats say they are only a small

fraction of the applications that have flooded in from

automakers, semiconductor companies and aerospace firms around

the world since the tougher export controls were introduced.

Washington says delays in issuing export licences show China

is reneging on commitments made during trade talks in Geneva

last month and it has retaliated with export curbs on plane

engine parts and other equipment.

U.S. President Donald Trump and Chinese President Xi Jinping

held talks by phone on Thursday as the escalating dispute over

China's rare earth stranglehold threatened to derail the fragile

trade truce agreed between the two superpowers.

When the new rare earth magnet measures came in, the export

control bureau had a total of just 30 staff, though this has

since been doubled to around 60, according to two sources who

were briefed on a meeting between the ministry and Chinese and

European semiconductor firms last week.

"We appreciate that MOFCOM has increased its resources to

address demand and they're working hard and long hours on these

issues," said Adam Dunnett, Secretary General of the European

Chamber of Commerce in China, referring to the ministry.

"But the reality is this is having a huge impact on a wide

variety of sectors. It's something that could have been better

planned and rolled out," he said.

According to personnel records posted to the Ministry of

Commerce's website in June 2024, there are only three senior

officials within the bureau who can approve the export permits.

The ministry's website lists the export licence bureau's

office hours as: Weekdays, 8:30-11:30 a.m., 14:00-17:00 p.m.

Reuters was unable to determine current staffing levels or

whether more officials are now able to approve applications.

The Ministry of Commerce did not respond to questions from

Reuters on this subject.

CHOKEPOINT

The global alarm over shortages underscores the enormous

leverage China has acquired through its near-monopoly on rare

earth production. It also reveals a complex bureaucratic process

that has gone from checkpoint to chokepoint.

"The process for our suppliers to apply for export licences

for various rare earths ... since April, is complex and

time-consuming, partly due to the need to collect and provide a

lot of information," a spokesperson for Bosch, the German

engineering and technology multinational, said last month.

A Chinese-language guide to the process published by the

Ministry in late March runs to almost 14,000 Mandarin

characters.

European auto suppliers alone have filed hundreds of

requests since early April, with only about a quarter granted.

These applications can range from dozens to hundreds of pages,

according to sources who have either filed requests or been

briefed about them.

Public Ministry of Commerce guidelines require information

including technical product descriptions, signed contracts.

Descriptions of production facilities and photos of products are

also encouraged.

China's stated aim is to ensure dual-use items don't end up

in military equipment, but officials are often overly cautious

even though many applications clearly state commercial use,

Dunnett said.

"Another concern we have heard from some companies is that

they are being asked for sensitive and excessive information

that is part of their intellectual property which has led to

delays in their applications," Dunnett added.

While applications are meant to be processed in 45 working

days, the ministry says applications related to national

security will take longer, without defining how long.

'STRATEGIC EXCUSE'

Cory Combs, head of critical mineral and supply chain

research at Trivium China, a policy research group, said it was

not clear whether the delays were due to bureaucratic inertia or

intentional weaponisation.

"We do expect these applications to U.S. end-users to be

reviewed on par with other countries and approved whenever

they're not for military use," he said. "The issue here is that,

is it quick enough for the Trump administration to believe that

Beijing has not reneged on the Geneva agreement?"

Some U.S. industry figures believe that the bureaucratic

backlog is a "strategic excuse".

"China can staff up as fast as they want, if they wanted

to," said a source from the U.S. rare earths industry who

declined to be named for sensitivity reasons.

In public, Chinese officials have said the export controls

apply to all countries, the implication being that they do not

count as a U.S.-specific countermeasure under the Geneva

agreement.

Foreign ministry spokesperson Lin Jian said on May 30 that

the rare earth export controls are "non-discriminatory and not

targeted at any specific country".

During the Geneva talks, however, China privately admitted

that the rare earth export controls qualified as non-tariff

countermeasures, according to a source briefed on the talks.

Rare earths remain a core part of ongoing U.S.-China

discussions, the person said.

China's foreign ministry did not immediately respond to a

request for clarification.

Chinese scholars openly admit that the rare earth export

controls are retaliation for U.S. chip curbs.

"It's a short-term form of leverage which doesn't hurt

China, as the rare earths in question have relatively low

monetary value," said Zhu Junwei, an international relations

scholar at the Grandview Institution, a Chinese think-tank.