China Hits Japan With New Export Controls on 40 Entities

China’s Ministry of Commerce announced on June 29, 2026, the imposition of new export control measures against 40 Japanese entities, placing 20 on a strict export control list and 20 on a watchlist. The move marks the third wave of escalating Chinese restrictions targeting Japan since January 2026, as Beijing continues to frame the measures as a necessary response to what it calls Japan’s “new-style militarism.”

The announcements, published as Notice No. 27 and Notice No. 28, took effect immediately. According to Xinhua News, the Ministry of Commerce held a Q&A session alongside the release, with a spokesperson stating that the measures are intended to “resolutely curb Japan’s reckless ‘new-style militarism.’”

Background: A Crisis Rooted in Taiwan

The latest restrictions are the product of a deepening diplomatic crisis that began in November 2025, when Japanese Prime Minister Sanae Takaichi stated in the Diet that a Chinese attack on Taiwan could constitute an “existential crisis” for Japan under the country’s collective self-defense legislation. China, which views Taiwan as a domestic matter under the “One China” principle, responded with fury.

What followed was a rapid escalation: diplomatic summonses, military exercises in the Yellow Sea, a Chinese carrier transit through the Miyako Strait, and live-fire drills around Taiwan under the codename “Justice Mission 2025.” In January 2026, Beijing banned all dual-use exports to Japanese military users. A second wave of entity-level restrictions followed on February 24, 2026, targeting 20 entities including Subaru, TDK, Mitsubishi Shipbuilding, IHI, and Kawasaki Heavy Industries.

What the New Measures Target

The June 29 round significantly expands the scope of Chinese restrictions. Notice No. 27 places 20 Japanese entities on the export control list, including four government defense research institutes — the National Institute for Defense Studies, Ground Systems Research Center, Naval Systems Research Center, and Air Systems Research Center — along with multiple Mitsubishi Heavy Industries and Mitsubishi Electric subsidiaries.

Notice No. 28 places an additional 20 entities on a watchlist, as The Paper reported. These include Mitsui E&S, Terra Drone (a drone manufacturer), ACSL, Mitsubishi Nuclear Fuel, Japan Nuclear Fuel, Fujitsu Network Solutions, Hitachi Advanced Systems, multiple OKI Electric subsidiaries, Howa Machinery, and Hosoya Pyro-Engineering.

Entities on the export control list face a ban on the export of dual-use items from Chinese suppliers, and foreign organizations and individuals are prohibited from transferring or supplying Chinese-origin dual-use items to them. Those on the watchlist face stricter end-user and end-use审查, with export licenses subject to enhanced scrutiny.

A Pattern of Escalation

The February round targeted primarily industrial conglomerates. The June 29 round represents a strategic expansion into new domains. By targeting government defense research institutes, Beijing is directly hitting Japan’s defense research and development infrastructure. The inclusion of nuclear fuel companies — Mitsubishi Nuclear Fuel and Japan Nuclear Fuel — signals concerns in Beijing about Japan’s nuclear capabilities and potential weapons development, a charge Tokyo denies.

The addition of drone manufacturers Terra Drone and ACSL reflects growing attention to emerging military technologies, while precision engineering firms like Howa Machinery and Hosoya Pyro-Engineering target specific nodes in Japan’s defense supply chain.

A Ministry of Commerce spokesperson explained the rationale, stating that Japan had “shown no remorse” after the February measures and had instead “gone further down the wrong path, accelerating its ‘new-style militarism’ steps, speeding up ‘re-militarization,’ deploying offensive weapons, and launching offensive missiles overseas.”

Strategic Implications

China is using its domestic export control legal framework — established by the Export Control Law of 2020 and the Regulations on the Export Control of Dual-Use Items — as a precision tool of foreign policy. Each round of restrictions targets specific nodes in Japan’s defense industrial base, leveraging China’s dominant position in rare earths and critical dual-use supply chains.

Japan, meanwhile, has not stood still. In May 2026, Tokyo passed revisions to the Foreign Exchange and Foreign Trade Act (FEFTA) to screen foreign investments and protect industrial secrets. Prime Minister Takaichi raised the issue of Chinese export restrictions at the June 2026 G7 summit, seeking support from allies.

Market reactions to the latest announcement were mixed. According to CNBC reporting cited in the research, Mitsubishi Electric shares slid around 1 percent, while Mitsubishi Heavy Industries gained 4.9 percent, suggesting investors are still assessing the real-world impact of the restrictions on individual companies.

What to Watch For

The trajectory of the crisis raises several critical questions. Will Japan announce retaliatory measures, potentially escalating at the World Trade Organization or imposing reciprocal export controls? Will the United States intervene or provide support to affected Japanese companies under the US-Japan security alliance? And crucially, is there an off-ramp for de-escalation, or will the cycle of retaliation continue to deepen?

China’s spokesperson sought to reassure law-abiding Japanese companies, stating that the measures “target only a small number of Japanese entities” and “will not affect normal China-Japan economic and trade exchanges.” But with each successive round expanding the scope and sophistication of targeting, the cumulative effect on bilateral economic relations is becoming increasingly difficult to ignore.

For now, the crisis shows no signs of abating. The question is not whether there will be a fourth round of Chinese restrictions, but what form it will take — and how Japan and its allies will respond.