China Watch Newsletter, APCO, Feb. 26, 2026.

WHAT HAPPENED

On February 24, China’s Ministry of Commerce (MOFCOM) announced new restrictions targeting 40 Japanese entities, adding 20 firms with military ties to its export control list and placing another 20 whose military ties are less clear on a watch list. The move prohibits shipments of dual-use items to blacklisted entities and subjects such exports to stricter licensing reviews for entities on the watch list. A separate MOFCOM statement specified that the measures aim to prevent the enhancement of Japan’s military capabilities and attempts to acquire nuclear weapons.

WHAT PEOPLE ARE SAYING

Chinese coverage framed the export controls as lawful, security-driven measures aimed at countering Japan’s defense buildup. The Global Times stressed that the restrictions were a “strong manifestation of China’s determination” to safeguard national security and would “blunt the spearhead” of Japan’s military build-up. Caixin, quoting MOFCOM, reported that the measures are “completely just, reasonable and legal,” and target a limited number of entities “and will not affect normal trade” with Japanese firms. Yicai observed that the move marked the first use of the watch list mechanism, creating a “dual-list framework” that is “more layered and precise” in its enforcement.

International media described the measures as part of an ongoing escalation tied to Taiwan-related tensions and Japan’s security posture. Bloomberg reported that the restrictions show Beijing “won’t drop its pressure campaign against Tokyo” following Prime Minister Sanae Takaichi’s recent electoral victory and her comments on Taiwan made in November, noting that this marks the first time Japanese firms have been added to the export control list. The New York Times wrote that “the restrictions come at a tense geopolitical moment in Asia” as Takaichi plans to raise Japan’s military spending. Reuters addedthat the measures may also reflect “a check against the Japan-US relationship and at Japan’s additional defense efforts.”

Discussion also centered on China’s growing ability to leverage its supply-chain dominance to apply economic pressure. The Financial Times detailed that dual-use items include “critical minerals, […] advanced manufacturing equipment and machine tools, rare earths and magnetic materials, as well as battery-related materials,” highlighting exposure across the automotive and consumer electronics sectors. Bloomberg described the move as a shift “to a rule by law system” that creates “a regulatory structure” for China to leverage its dominance in global supply chains and exert diplomatic pressure. Reuters added that “it is not clear how long it might take for shortages to become an issue,” given Japanese companies’ existing rare earth stockpiles.

OUR TAKE

China’s latest restrictions build on its January ban on exporting dual-use items used for military purposes to Japan and further escalate bilateral tensions. The introduction of the watch list also represents an expansion of Beijing’s retaliatory trade toolkit, which it can use to pressure critical supply chains. As tensions between China and Japan show no signs of abating, they may be discussed during US President Donald Trump’s China visit, confirmed to take place from March 31 to April 2. However, the biggest items on the agenda will undoubtedly be tariff agreements, especially in light of the US Supreme Court’s ruling and subsequent US tariff measures, as well as rare earth supplies and commitments from China to buy US products.