China has expanded its export restrictions targeting Japanese defense-related entities, intensifying a campaign that began earlier this year. On June 29, the Chinese Ministry of Commerce blacklisted four Japanese government defense research institutes and placed tighter controls on 20 additional organizations, including key players like Mitsubishi Electric and Mitsubishi Heavy Industries. The new rules prohibit Chinese-origin dual-use goods from being transferred to these entities, with immediate effect, and halt all ongoing transactions involving these firms. Another 20 companies, including drone maker Terra Drone Corporation and nuclear fuel processors such as Mitsui E&S Co., were added to a watch list requiring enhanced licensing scrutiny for exports.

This escalation follows a similar series of actions that China initiated in January, which banned exports of critical minerals and dual-use items essential for defense technologies to Japan. February saw further additions to the restricted list, affecting prominent Japanese industrial conglomerates like IHI Corp. and Kawasaki Heavy Industries, along with firms such as Subaru Corp. and TDK Corp. The heightened restrictions have been partly motivated by political tensions, particularly after Japanese Prime Minister Sanae Takaichi’s remarks in late 2025 suggesting that any Chinese military aggression against Taiwan could provoke a Japanese military response—a statement that Beijing deemed provocative.

China’s commerce ministry argued that Japan has intensified its military ambitions, describing actions such as deploying offensive weapons and international missile launches as signs of a "new-style militarism." Beijing insisted these export controls are targeted only at military applications and do not affect normal economic and trade relations, assuring that law-abiding Japanese companies should not be concerned. The Chinese government has called on Japan to “turn back from the wrong path” but remains firm on maintaining the export restrictions to curb Japan’s defense capabilities.

Market responses were mixed following the announcement. Shares of companies such as Mitsubishi Electric and Howa Machinery saw declines, while Mitsubishi Heavy Industries and Terra Drone Corp. experienced gains. Analysts note China’s dominance over critical mineral supply chains gives it leverage to apply economic pressure on countries like Japan that support Taiwan. Despite Japan’s efforts to diversify and reduce dependence on Chinese resources since 2010, its industries remain closely linked to supply chains involving China, raising concerns about the economic impact of prolonged export controls. An economist at Daiwa Institute of Research estimated that a year-long cutoff of these imports could cut Japan’s real GDP by about 1.3%, equivalent to approximately $43.3 billion.