From Complacency to Panic to Delusion — How the West Misread China’s Pause
The Policy Catalyst
In March 2025, the new United States administration under President Trump reintroduced a series of tariffs on Chinese industrial products, including electric vehicles, batteries, and critical minerals. The measures were justified as a response to what Washington described as “market distortion and state subsidy.” Beijing’s response followed just over a week later, not through tariffs of its own but through regulation. On 4 April, the Ministry of Commerce issued Announcement No. 18, designating several heavy rare-earth elements — samarium, gadolinium, terbium, dysprosium, and lutetium — as “dual-use technologies” under China’s 2020 Export Control Law. The message was clear: if Washington intended to use trade as leverage, Beijing would use access.
MOFCOM 18 set the tone for the rest of the year. It became the first in a series of policy actions that reshaped sentiment across the rare-earth industry and revealed how differently China and the West interpret economic strategy. Beijing acts within a coherent framework; the West reacts to headlines.
Complacency
For several years, critical minerals had been discussed in Western policy circles but rarely acted upon. Strategies were drafted, committees formed, and targets set, yet the investment required to build alternative supply chains never followed. Projects outside China were treated as interesting but non-essential. Investors assumed that China would continue to supply the world, just as it had for two decades. That assumption did not survive the re-emergence of tariffs.
The rare-earth market responded immediately to MOFCOM 18. Prices strengthened, trading volumes increased, and projects such as Pensana, Iluka, Arafura, Lynas, Vital Metals, and Mkango returned to analyst coverage. Their valuations remained low but began to rise for the first time in years. As the new export-licensing rules started to take effect, several automakers reported temporary factory closures and reduced production, citing the non-availability of magnets and alloys dependent on Chinese rare-earth supply. The classification of rare earths as dual-use materials signalled that these were no longer routine commodities but inputs critical to both industrial and defence manufacturing. The linkage between policy and production became visible within weeks.
Panic
Through the summer, confidence continued to build. The United States and Europe began to align policy on critical minerals, and financing discussions moved from theory to implementation. Export-credit agencies and development banks started assessing offtake-linked project funding. Pensana confirmed African backing for its Longonjo project, and construction was scheduled to begin. For the first time, the market was responding to delivery rather than narrative.
Then Beijing issued MOFCOM Announcement No. 62. It was not a refinement of earlier measures; it was a demonstration of control. The order expanded the April framework to cover not just materials but the full spectrum of rare-earth technology — mining, separation, smelting, magnet manufacturing, recycling, and any technical services or software that could support production outside China. It was a clear statement of ownership and intent, showing that Beijing was prepared to wield its advantage without hesitation.
The effect was immediate. Rather than cooling sentiment, the announcement intensified it. Investors interpreted it as proof that China regarded rare earths as a strategic instrument and was prepared to use them accordingly. The Financial Times described the order as “Beijing’s most comprehensive single-sector intervention to date.” For Western governments, it confirmed what developers had been arguing for years: diversification was no longer a commercial objective but a strategic necessity.
The rally only broke in the days before the Trump–Xi summit in Korea. On the Sunday preceding the meeting, U.S. fund manager Scott Bessant told a television panel that “a deal was done” and that China’s rare-earth restrictions were effectively over. Algorithms reacted instantly. Within hours, positions reversed. MP Materials in the United States and Lynas Rare Earths in Australia — then the sector’s two largest companies — led the decline. By mid-week, coordinated short positions had appeared across the sector from Sydney to London. The entire complex lost nearly forty per cent of its value in less than two weeks.
Companies that had just achieved major progress found themselves using that progress to stabilise their share prices. The fundamentals had not changed; sentiment had. The correction was not driven by operational failure but by misinterpretation.
Delusion
Beijing’s next move came on 7 November, when MOFCOM and the General Administration of Customs issued Announcement No. 70, a one-page notice suspending enforcement of the October controls for one year. The document did not revoke the earlier measures; it simply deferred their application until 10 November 2026. Yet the nuance was lost. Western media ran headlines claiming that China had “backed down.” Analysts and policymakers interpreted the announcement as evidence of de-escalation. Few had read the document itself, which existed only in Chinese.
The market largely missed that distinction. The announcement was interpreted as a relaxation of policy rather than a procedural delay. In reality, there appears to be no mechanism to extend or renew the deferral. Once it expires, the controls automatically return in full effect unless replaced by a new directive. The structure of the policy remains intact, unchanged in scope or intent.
The immediate reaction, however, was relief. Liquidity improved slightly, but conviction did not. Coverage across the sector thinned, and the term “non-Chinese premium” disappeared from analysis. Projects that had begun to attract fair-value attention were again priced as speculative. The West congratulated itself on a perceived diplomatic success, while China quietly retained every lever of influence.
Five days after MOFCOM 70 was issued, the market was still cautious. Prices had stopped falling, but there was no clear sense of direction. Investors understood that the logic for developing independent supply remained sound but were reluctant to act. The momentum created by funding and construction progress now has to rebuild itself under greater scrutiny.
Reflection and Reckoning
Share prices are inching higher, yet confidence is still lagging behind. The same companies that were finally recognised as undervalued before October now have to prove again what is already obvious: their fundamentals were never the problem — only perception. The West misread a pause as a concession and, in doing so, reinforced the leverage it hoped to avoid. MOFCOM 70 confirms China’s position: enforcement of the October rules is deferred, not withdrawn, and the April export restrictions remain in force. Nothing has been lifted; only the timeline has changed.
As the sector tries to make sense of events, Financial Times columnist Simon Edelsten offered a timely analogy. In his 8 November 2025 opinion piece, “AI bubble: don’t throw the baby out with the bathwater,” he warned investors not to mistake short-term volatility for structural failure. His words apply just as clearly to rare earths. The only thing most Western investors saw was an opportunity to profit from panic by shorting the very companies positioned to solve the problem. There was little recognition of fundamentals or of the long-term need for secure supply. The market trades on days and quarters; China plans in decades.
What changes now is time. The market has less than a year before the deferral expires and enforcement can resume without further notice. The pause is administrative, not ideological — a deferral, not a reprieve. MOFCOM 70 contains no provision for renewal; the deferral itself is not renewable. When the year ends, the original controls automatically regain force. The window for Western producers to demonstrate tangible progress is narrow. Momentum must return — not gradually, but decisively — because when the pause ends, Beijing does not need to announce anything new. It simply continues.