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China has restricted exports of rare earth magnets and other critical materials to dozens of leading Japanese companies in an escalation of a dispute with Tokyo.

China’s commerce ministry on Tuesday said it would freeze the flow of “dual-use” materials, which have applications to both civilian and military industries, to 20 Japanese companies. Another 20 groups are being added to a new “watch list”.

The measures, which affect affiliates of Mitsubishi Heavy Industries and vehicle makers Subaru and Hino Motors, were meant to “curb Japan’s ‘remilitarisation’ and nuclear ambitions”, a commerce spokesperson said.

The new measures would be effective immediately, the ministry said.

The restrictions deepen a row with Japan and illustrate how Beijing is wielding its dominance in critical supply chains to exert diplomatic pressure. The global automotive industry is heavily dependent on China for rare-earth magnets.

The announcement hit Japanese share prices, with MHI falling as much as 4.3 per cent, Kawasaki Heavy shedding much as 5.5 per cent and IHI Group and NEC dropping more than 7 per cent. Subaru lost 3 per cent.

The dispute arose in November after Prime Minister Sanae Takaichi said a hypothetical Chinese invasion of Taiwan could pose an “existential threat” to Japan, suggesting Tokyo could respond with armed force. Beijing claims sovereignty over Taiwan and has threatened to exert its claim militarily if Taipei resists indefinitely.

Diplomats in Tokyo said Beijing’s position appeared to have hardened since Takaichi’s landslide election victory this month. She campaigned on pledges to fortify national security and has indicated that she will move ahead with plans to amend Japan’s pacifist constitution.

At the Munich Security Conference this month, China’s foreign minister Wang Yi accused Tokyo of harbouring ambitions of occupying Taiwan, which was a Japanese colony until the Allied victory in the second world war.

“The erroneous remarks made by Japanese leaders on the Taiwan issue expose Japan’s undying ambition to invade and colonise Taiwan and the lingering spectre of reviving militarism,” Wang said. 

China last month announced its intention to ban “dual-use” exports destined for Japan’s military. Those goods include critical minerals such as gallium, germanium, antimony and graphite, advanced manufacturing equipment and machine tools, rare earths and magnetic materials, as well as battery-related materials.

The 20 Japanese companies barred from receiving dual-use exports on Tuesday include entities tied to defence work at MHI, Kawasaki Heavy, IHI and NEC.

The commerce ministry also outlined a process that will slow shipments of rare earths to groups on the “watch list”, which include Subaru and truckmaker Hino, as well as TDK, a major supplier of smartphone batteries and other electronic components.

These groups will need to commit “that the dual-use items will not be used for any purpose that contributes to enhancing Japan’s military capabilities”.

Subaru and Hino supply defence equipment such as aircraft systems, helicopters and military-grade trucks, but China’s measures could result in a blow to their civilian businesses.

IHI said it was “confirming the facts” and would “closely monitor the situation”. Subaru, Hino, TDK, MHI, NEC and Kawasaki Heavy did not immediately respond to requests for comment.

Several Japanese automakers had already voiced concerns about restricted supplies of rare earths. 

During an earnings call this month, Honda’s vice-president Noriya Kaihara said its outlook was “highly uncertain”, with the company “not in a situation of supplies arriving stably on time”.

He added: “If supplies were to be disrupted, the risk would be extremely significant.”