In this week’s episode of China Insider, Miles Yu discusses China’s recent announcement that it would expand export controls to further restrict foreign access to rare earth elements, and the larger impetus behind this change. Next, Miles unpacks the Chinese Communist Party’s latest political warfare tactic to coerce the United Kingdom and begin construction on the new Chinese embassy in London. Finally, Miles comments on Taiwan’s 114th National Day celebrations, and reviews President Lai Ching-te’s comments on his plans for Taiwan’s economic development and national security policies.
China Insider is a weekly podcast project from Hudson Institute’s China Center, hosted by China Center Director and Senior Fellow, Dr. Miles Yu, who provides weekly news that mainstream American outlets often miss, as well as in-depth commentary and analysis on the China challenge and the free world’s future.
Episode Transcript
This transcription is automatically generated and edited lightly for accuracy. Please excuse any errors.
Miles Yu:
Welcome to China Insider, a podcast from the Hudson Institute's China Center. I am Miles Yu, Senior Fellow and Director of the China Center. Join me each week for our analysis of the major events concerning China, China threats, and their implications to the US and beyond.
Colin Tessier-Kay:
It is Tuesday, October 14th, and we have three topics this week. First, we discuss the latest developments in rare earth minerals and China's decision to expand export controls to additional critical minerals. Next, we look into news from last week regarding the UK embassy in Beijing, which had its water supply cut-off amidst a political controversy, and what the CCP’s response reveals about China's enhanced political warfare tactics. Finally, a cause for celebration as we observe Taiwan's National Day celebrations and review the day's events. Great to be with you again this week, Miles.
Miles Yu:
Great to be with you again, Colin. It's always a pleasure.
Colin Tessier-Kay:
Likewise. Up first today, China imposed a list of export controls on rare earth minerals last Thursday, expanding the list of minerals affected and curbing production targets for their use overseas, including minerals essential for military and semiconductor applications. The move was announced in advance of the planned meeting between President Trump and Xi Jinping at the APEC summit later this month in South Korea. So Miles, start us off here. What has happened exactly in the past week regarding rare earths and why would Beijing impose export controls at this point?
Miles Yu:
Well, there's a long-term cause [and] there is also an immediate trigger. [First], we’ll talk about the long-term cause. China figured out [that] in order to dominate the world, it has to create some kind of leverage. Unlike the Cold War, China cannot export communist ideology at gunpoint. So, the best way has always been to create [a] global dependency on trade and technology [that is] dominated by China. That has always been the grand strategy for China's march to global domination. One of the very important things that they have developed is critical supply chain links, [where] they have created a dominant monopoly. Rare earths are one of [these kinds of supply chain monopolies]. This has been going on for a couple decades and China has invested enormously in this area. Now, rare earths, [there are] actually about 18, are [materials that are] very hard to get and hard to refine that are critical [to the] IT revolution, particularly military defense.
Rare earths, again, [are] not rare, but the processing of [the rare earth minerals] is very toxic. For example, [the ecology of many places in] inner Mongolia [a site of Chinese rare earth processing], which is the equivalent to the province, have been destroyed because in order to get these rare earth [minerals], you have to involve a tremendous amount of toxic, radioactive materials to separate and refine [them]. So, China [has] near a monopoly, not total monopoly yet, of around 80-90% in the mining, and [their control of the] processing [of these rare earths] is even [greater]. Now, there are also heavy rare earths. Those are the rare and difficult ones, [and are] used for defense mostly, [like] high-end magnets. In 2010, China shocked the world by issuing an embargo on [the] export of the rare earth materials to Japan after a Chinese ship ran into a Japanese Coast Guard vessel near the disputed Senkaku Islands, which were controlled by the Japanese.
China wanted to punish Japan [for this]. [This] was very debilitating [for Japan] because China has the monopoly on [rare earth] materials, which are critical for the Japanese automobile industry and electronic manufacturing [industry]. Japan, of course, did not capitulate. They took China to court [in] the World Trade Organization (WTO), and the World Trade Organization ruled in 2014 against China. A year later, China was forced to end that embargo. In other words, China's sort of move to use rare earths to blackmail other countries does not have legality. But, the 2010 embargo against Japan also served as a wake-up call to the rest of the world. Countries like the United States, France, Germany, Japan of course, and England began to diversify. [However], to get rid of this dependency [on China] will take a long time.
First of all, regulation wise, it's very difficult to get a license from governments for obvious reasons. Secondly, they do not have the equipment and technology. But the first thing [these countries] have accomplished was to diversify the mining [of these critical materials]. In other words, get the ore, get the raw materials. Australia, Malaysia, and the United States, of course, have significantly increased their mining. So, raw materials should not be a problem. Right now, China's control over the mining part is downgraded to about 65-70%. The issue really is [that] China has this near monopoly on the processing technology and equipment. That will take a long time [to downgrade]. This is basically the long story. The United States, under Donald Trump, realized that this is a problem. That's why he's been talking about getting a mineral deal, a rare earth deal, with Ukraine, with Australia, with other countries. He talks about this all the time.
This is the long-term strategic sort of back and forth. China's move last week, which was very draconian, demand[ed] that all countries in the world [that] want to trade any products that have just a tiny bit of Chinese-sourced rare earth or Chinese-processed rare earth material must get prior approval from the Chinese government. This is basically blackmail. China wants to control global trade. This is an absolutely stunning tool that prompted President Trump to issue this very harsh statement about China and also the subsequent imposition of a 100% [additional] tariff on China, effective November 1st. Remember, there was one very important visit by foreign dignitary to the White House that most media really didn't mention. In September, 2025, just over a month ago, the Prime Minister and army chief of Pakistan visited the White House.
The importance [of this] is of course [that] it marks a thaw of the US-Pakistani relationship. This has been sort of frozen since the Osama bin Laden incident. Now, recently, of course, President Trump brokered the ceasefire between Pakistan and India, [restoring] goodwill between the US and Pakistan. Prime Minister Sharif and the Army Chief General Munir came to the White House [to] not only to thank President Trump for the peace deal, but also bring [a rare earth deal] to the United States. It's very interesting. The Army General brought a box of rare earth materials and showed President Trump and he said, Pakistan has a lot of reserves, even though it's yet to be proven. But Pakistan said, we have all the stuff there, something like several trillion dollars worth of this rare earth material, and it's time for the United States to sign a deal with Pakistan.
Pakistan clearly wants to secure an economic integration with the United States to enhance America's security guarantee for Pakistan. This is shocking because China's biggest foreign investment in terms of geopolitical assets, weapons, and economy is Pakistan. There's no closer power than Pakistan to China. This is shocking. And not only that, two things happened. [First], Pakistan was really entertaining the idea of [offering] President Trump access to a Pakistani naval port called the Pasni, which is right next to the Chinese operated Gwadar Port (瓜达尔港), which overlooks the mouth to the Persian Gulf [and] is very strategically important. A lot of articles have been written about this. I think [this] freaked China out. And also, in that White House meeting, it was decided that a Pakistani company would sign [a $500 million deal] with a Missouri-based American rare earth company to extract and process rare earth materials in Pakistan. This is a very, very promising deal. I think Pakistan must have Chinese-provided equipment and technology to extract those rare earth materials. I think this is what triggered China to issue that demand. This is basically where we are. This is my take on the long-term and short term causes of this big blow up over rare earths between the US and China.
Colin Tessier-Kay:
Yeah, that's a really insightful take and certainly something that hasn't been covered, at least in the mainstream media to the extent that I've been able to parse out. To kind of just build out some more of the specifics here, the total number of elements that now require those export licenses, like you mentioned, from foreign firms rose from 12 to 17 and covers a lot of the magnet-specific minerals like you mentioned, Miles. And it's really interesting if you compare this to China's Ministry of Commerce’s public statements where they said the restrictions “aimed to safeguard national security interests by preventing the materials from being used directly or indirectly in military and other sensitive fields.” And the ministry itself will reject license applications tied to military investment and have extended the restrictions to Chinese companies and even individual nationals abroad, prohibiting them from assisting with processing and manufacturing [rare earth materials] without CCP approval. So Miles, what should we make of this policy? Because you're highlighting a lot of really key geopolitical considerations here that might indicate China's monopolistic grasp on the rare earth mineral sector is weakening. There's [also] some indication that this might also be related to China's EV industry and the struggle that it's having right now and the kind of protections there. So is this move a retaliation, a provocation, or is it revealing something deeper about Beijing right now?
Miles Yu:
I think that China is realizing that its monopoly on rare earth materials is collapsing, and I think this is a policy of desperation. I forgot to mention one thing. Pakistan and the US not only signed the deal, they actually delivered the first shipment of critical materials and rare earth elements last week on October 5th. [I think] that shipment really got China upset about this. [The shipment] included copper concentrate and [some of the very important] rare earth elements like neodymium and praseodymium. Those were very important elements that the US needed. I think this is not just a memorandum expressing [a] desire, [but] there's actually stuff going on as we speak. I think that is basically why you see this kind of rush and surprise move by the Chinese. It sounds like they did it in a hurry, [like] the Politburo basically had an overnight meeting or something.
You talk about China's EV [industry] and obviously China dominates some of the green [energy] product exports, particularly solar panels, batteries, and electric vehicles. Now, China's electric vehicles heavily rely on state subsidies. There is virtually no more domestic market for electric vehicles because the purchasing power is so limited and because there is an over-capacity of EV manufacturers in China. A couple of years ago, [there were] 500 electrical vehicle makers in China. There are so many because they want to get a state subsidy. As a result, you have a total saturation of EVs in China's domestic market. In China, [when] you travel around you see millions of abandoned brand new electric vehicles rusting in what Chinese call “EV graveyards” because they're over capacity. Over-capacity is solely the creation of state subsidies. In a normal, true market economy, over-capacity would cripple a business because they cannot sustain the financial consequence of their goods not being sold. This is the problem. China has artificially created over-capacity in the Chinese domestic production line and then dumps their over-capacity products to the rest of the world. And that's the problem.
On the other hand, if you look at China's biggest EV exporter, [that is] BYD. BYD makes good cars, but BYD makes good cars by incurring enormous liabilities because BYD does not have enough cash to go around. So they [give] IOUs to thousands of suppliers, [and] the supplier uses the IOU to borrow money from the bank. So essentially, BYD incurs a lot of indirect liabilities to the suppliers and that's very, very dangerous because if one of the suppliers says, I cannot really live on this IOU and I'm going to stop working with you, [then] the whole chain will collapse. This is exactly what happened to Evergrande and to the real estate industry. That's why BYD’s [stock is] now tanking and the confidence in its financial felicity is dropping dramatically. I would like to predict, and I think I could be right this time, the collapse of China's EV industry, because it is just not sustainable, it's not market driven, it's geopolitical driven.
For that same reason, China's use of rare earths to blackmail the world [will not] work in the long run because people will just unite and deal with China. Now, there is also a very important aspect that I want to point out here. That is, people always are seduced by fancy theories out of Harvard University or some other [universities or institutions of] higher education. [For example], the Thucydides trap, which basically said that the world's problem is really between China and the United States. It is a ruling power versus the rising power, and that's basically not true. [That there is] a rare earth blow up right now, as we are witnessing this week, indicates that it is never just about China versus the United States. It's really about China versus the rest of the world because China is blackmailing the whole world to comply with its command economic policy. That's a very important point we should keep in mind.
Colin Tessier-Kay:
Absolutely. And to briefly round out this topic, I'd like to talk about the US and the larger world response to these export control announcements. President Trump and the administration announced that, in addition to the 100% tariff from over the weekend, they're ramping up efforts to secure US supply chains for these critical minerals and semiconductors by converting federal grants to companies into equity stakes aimed at reducing reliance on China. So we're also seeing an attempt to bolster not just US supply chains, [but also] global supply chains as part of this shift to direct ownership from traditional subsidies. So Miles, I'm just curious, based on these responses from the US and the rest of the world, where does this development go from here? Will we see a de-escalation before the APEC summit at the end of the month, or are we likely entering a new stage of economic tensions between the world and China?
Miles Yu:
I don't see any easing of tensions simply because what really motivates Chinese policy is not just some kind of emotional impulse. It's driven by a very rigid ideology. Now keep in mind, what China is demanding is [that the] US cancel all tariffs against China to zero because China’s demand to the United States is uncompromising. China's the only country in the world that does not admit any legitimate concern of the United States, vis-a-vis their unbalanced trade. Everybody who trades with the United States comes to the United States to negotiate, to make compromises on both sides, even though some compromises might not really be present. But they all realize the United States is the biggest consumer market in the world. The US commands half of the entire global consumption each year. Global consumption is about $48 trillion each year [and the] US accounts for about $24 [trillion] of that. So that's why Chin’s own rigid ideological intoxication is the real obstacle to solving all the problems between the US and China.
Xi Jinping is basically an ideologue: he is the Communist party chief. He believes the United States has this master plan to prevent China from rising and this so-called containment nonsense. What the US wants is [for] China to open up its market, [to] do business openly with transparency [and] reciprocity. That's basically [the] dream of the west. Since the mid-19th century, China [has] remained a closed society, and with communism in charge, [with the] Communist party in charge, that closed society is total and totalitarian. Ultimately, we're talking about [that] China and the United States are on totally different political paths. The systemic political differences really should be the key to understanding US-China dynamics.
Colin Tessier-Kay:
We could easily spend a whole episode on this topic alone just with how much of the larger implications there are here. But moving to our next topic today, a little over a week ago, reports emerged that Beijing had cut the water supply to the UK embassy in a tactic to coerce the British government to cave to demands to build a “mega embassy” in London. This proposed embassy complex would be housed at Royal Mint Court in London and has faced opposition from the UK's local and state-level officials. Miles, walk us through what has happened here and what has been going on since the water shut off at the beginning of the month.
Miles Yu:
Well, China's sort of a demand to build gigantic embassies in foreign countries, [especially] Western democracies has [an] obvious reason, [that is the CCP] basically uses them as some kind of fortress of penetration. The Chinese embassy staff is normally very big, I mean the Soviet Union had the same kind of a thing, because they have hundreds of hundreds of people there doing all kinds of other subterfuge, United Front, and trade. It demands a big embassy [staff]. You see some of the tiny countries in the Caribbean [that] have embassies [with] several hundred staff members. This is ridiculous. So the embassy always has this sort of legitimate mission of inference pedaling and espionage, for example. This is no secret. Now of course, this caused controversy. The [Chinese argue] that this is blackmail [by the UK]. The UK is the running dog of the United States, the ultimate adversary of the Chinese Communist Party, therefore they insist on [preventing China from building a big embassy in London].
Now whether China is right or wrong, is not what [I am talking] about right now, but the way China resorted to solving this international dispute is absolutely barbaric. This is nothing new. This is not the first time China attempted to cut off the water supply to a foreign compound. The first time [was] with the British in 1839. [In] 1839, [a] bunch of opium dealers working for the British East India company, a private company based in India, were ordered to surrender their opium to a Chinese authority, which is probably the right thing for them to do. The commissioner sent there is a guy by the name Lin Zexu (林则徐). [He is the] commissioner of Lin, so he cannot really persuade the British opium dealers [to surrender their opium]. What I think he should have done is talk to the British government because opium trade was illegal in the British Empire.
But then, of course, the British government is so inferior to the “Middle Kingdom”, so he did not do that. Lin Zexu ordered a besiege of the opium dealers’ compound in the Chinese city of Canton, [which] is now called Guangzhou. [He] cut off the water supply and cut off the food supply. This basically had the opposite result because the British government said [that] this was so inhumane and that's when the government got involved. They should have been involved in the negotiation talks to jointly crackdown on opium dealing in China. Now fast forward to 1967, when I was growing up in China, you have this thing called the Cultural Revolution. In 1967, one year after the Cultural Revolution, Red Guards burned a significant part of the British embassy in Beijing. This was a really, really big deal. Now, keep in mind, the British were not necessarily hostile to the Chinese Communist Party.
Great Britain’s government was the first western democracy to recognize the People's Republic of China right after 1949 when the Chinese PRC was established. This is one reason why I think China continued that kind of legacy of using a rather undiplomatic approach to solve diplomatic issues. And so in 2025, here we go again. They did not really outright cut-off the water supply. They just make the water supply very irregular [and] intermittent to harass you to [and] send a signal. The Chinese government is an expert in sending signals, normally very ominous signals.
Colin Tessier-Kay:
Yeah, I don't know if you caught the comments by one British diplomat from the embassy who said that China's foreign ministry told them, “sometimes our water supply goes missing.” And as ridiculous as this all may seem, it does appear that the UK government will waive requests to deny the “mega-embassy” project despite the significant security risks it poses. Opposition leaders in the UK government have taken to calling it Project Kowtow. So Miles, to round out this topic, what exactly are the significant security implications for the UK here and why is China so bent on establishing this embassy in London in particular?
Miles Yu:
Because London is an open city, right? The UK government has been very weak on China. The current Prime Minister [Keir Starmer] is a disgrace in my view when dealing with the Chinese espionage threat to Great Britain. There [have been] cases of two spies within the British establishment for China. They were charged. But before the trial started, the British government’s security chief basically forced the case to be dropped in order to appease Beijing. This is a total disgrace. It's all very important to have some kind of trading relationship with China, but you have to understand [that] Britain is a different country because Britain is America's closest ally. If you do not care about your security, [about] Chinese espionage in your country, we [the United States] have a greater concern about sharing intelligence [and] sharing some very critical information with you. This is not just about the relationship between Great Britain and China, it's more importantly about the United States and the UK. That's why the White House has directly appealed to the British government, the Labor Party cabinet, to reverse the decision [and] put British spies for China on trial. And so [we get] tough because otherwise our confidence in Britain's cooperation on dealing with the China threat will erode. So I hope officials in London will hear this podcast and just think it over.
Colin Tessier-Kay:
Turning to our final topic for today, and some good news for a change, as happy birthday wishes are in order. Taiwan celebrated its 114th Double Ten National Day last Friday, featuring military parades and a variety of performances and speeches in front of the presidential office in Taipei. Miles, a cause for celebration here. Could you walk us through the day's events and the significance of these celebrations to Taiwan?
Miles Yu:
Well, this event, a celebration, was marked by the conspicuous absence of overreaction from China. That's because President Lai just focused on some of the issues [that would not] give China any excuse to blow off steam. I think he praised Taiwan's democratic progress, he praised the Taiwanese people's resilience in fending off pressure and threats from adversaries across the Strait, and he gave people a very uplifting speech. And of course, there's a lot of dancing, singing, and good food. From the Chinese side, I think Xi Jinping has his hands full dealing with the United States, and also, don’t forget, within a week or two, there is a very important Communist party plenum. That is the 4th plenum of the 20th party Congress. Every time there is some kind of plenum, there's always some kind of major [personnel] shuffle. In China, within that particular political system, we are not talking about somebody stepping down and somebody getting in. We're talking about if you're done, you go to jail or you disappear, so you'll be purged. That means that your political loyalty is in question and you'll be out of the favor of the Party Secretary. That's a very big deal. I don't know whether that is overhyped or not, but I think normally, according to the past trajectory and this normally is the case, I think Xi [is] probably busy dealing with some of these domestic comrades.
Colin Tessier-Kay:
I would imagine so, and certainly with the sequencing of events. [It is also] important to note that President Lai’s speech absolutely treaded the perfect line between not provoking, but also fomenting and strengthening domestic support. There were two key points that I like to spend the rest of the time on today. The first part was [his] focus on economic aspects and cited strong economic performance and promotion of Taiwan, specifically Taiwan's new trillion dollar national development plan, which is aimed to fund critical infrastructure projects and strengthen industrial capabilities with ten new AI initiatives and high tech investments and [a] further pledge to develop Taiwan into an Asian hub for asset management, specifically in biopharmaceuticals. Miles, just curious to get your take of what you make of Lai’s economic comments here, and are they likely to renew support for DPP policies in the wake of the recent recall movement?
Miles Yu:
I think the Lai administration is thinking big. I mean, I attended his inauguration last year, and the most striking theme from his speech at the inauguration was that he wants to make Taiwan the economic empire where “the sun never sets”. So that's very ambitious, right? Taiwan has the capability to do so because Taiwan [dominates the world in some key industries]. Chip making of course, and all biomedicine [and] bioresearch, even [their] ship building is pretty good. Right now, the Silicon Revolution actually has this contagious impact on Taiwan. That is, a lot of very smart and highly successful silicon industry titans are from Taiwan. I mean Jensen Huang [is the CEO and president of] the world's largest IT company, Nvidia. And also Lisa Su, [who] is the CEO of AMD, the second largest chipmaker in the United States. They are cousins actually, [and they are] both the favorite native son, native daughter of Taiwan.
That's why you see both AMD and Nvidia, in particular, investing enormous capital in building their data center [and] their facilities not just in Taipei, but also in Tainan [and in] other places. I think Taiwan is going to be a very important part of the global supply chain in high-end technology and high-end products. Taiwan's GDP has shot up dramatically, I think it has the highest rate of growth in [all of] East Asia. And I think the economy is going well. Of course, Taiwan has some sort of underlying problems, like really exuberant housing and also some of the energy problems. For example, you have to have [the] energy guarantees and security, not only for wartime, but also for industrial development. You have so many [companies that have a high consumption and demand for electricity] and you have to provide more power plants. Taiwan, under the current government which is very progressive, does not believe in nuclear power, for example. They are very green. Green power is good, but in my view, green energy can only be supplementary, not really the mainstay, because industrial demand is such that you cannot really afford green energy such as wind, which has the intermittency problem. And even solar, which obviously is not strong enough [or] sufficient enough. I think we should learn lessons from countries like Germany.
Colin Tessier-Kay:
I'm glad you brought out the security implications here because to kind of round out today's discussion, perhaps we buried the lead slightly, but Lai in his speech also announced, related to military and security affairs, Taiwan's defense spending will now exceed 3% of gross domestic product to build the T-Dome Air Defense System and integrate other aspects of AI and high tech capabilities for early warning systems. Miles, I'm curious to get your take on what we should make of the T-Dome Defense System here and how impactful this might be to ongoing deterrent strategies and warding off potential aggression from China, especially as you mentioned with securing the island's energy systems as well as just general defense.
Miles Yu:
Yeah, I think this is a very important development. I mean, people keep saying that Taiwan is not really investing enough on defense. I mean these people just, they don't know what's going on. The Taiwanese government spends more and more money right now [on defense]. It's over 3% [right now] and that's big for the Taiwanese government’s budget and [this defense spending increase has overcome] enormous [political] opposition [and] resistance within the Legislative Yuan (LY), which is controlled by the opposition. I've heard from senior Taiwan officials that their goal is to spend 5%, which is the NATO standard, and even 10% I heard somebody say, but I think the key issue is not really matching a spending parity with China, which is much bigger. [The key issue is] to spend on [the kinds] of critical platforms [that are] needed for Taiwan's defense. You mentioned T-Dome, which is obviously very important. [For example] the Israelis, can you imagine without the Iron Dome, what Israel's security would be like?
The United States is developing its [own] Golden Dome, basically a nationwide missile defense system. [In] Taiwan, that is exactly what is needed, missile defense against mainland China. The biggest threat from mainland China is their long-range strike capabilities. Of course, if you follow the trajectory of Japanese defense policy in restructuring, you can develop something like counter-strike capabilities. The Japanese about four or five years ago announced, which astonished everybody in the world, that Japan is going to give up its traditional defense-obsessed posture, and change that to defense posturing [that focuses] on developing counterstrike and preemptive strike capabilities. That's pretty bold. I don't think even the United States can really openly say that, but I think Taiwan is always leading the way in self-defense against China's threat in the region. I think Taiwan is pretty much moving in the same direction [as Japan].
Colin Tessier-Kay:
Well, that's a great place to leave it for this week. Thank you to our listeners for joining us again, and thank you Miles as always for lending us your expert insight and analysis on these critical issues. Looking forward to next week's discussion.
Miles Yu:
Okay, see you next week.