By Satoshi Sugiyama and Rocky Swift
TOKYO, Jan 7 (Reuters) – Japan’s chief government spokesman said on Wednesday that China’s ban on dual-use goods exports to the country was “absolutely unacceptable and deeply regrettable”, as a diplomatic row between Asia’s top two economies escalated.
Dual-use items are goods, software or technologies that have both civilian and military applications, including certain rare earth elements that are essential for making drones and chips.
Japanese Prime Minister Sanae Takaichi fueled the dispute with Beijing late last year by saying a Chinese attack on democratically-ruled Taiwan could be seen as an existential threat to Japan. China considers Taiwan part of its territory, a claim the island rejects.
Beijing demanded it retract the remarks, which it did not, prompting a series of countermeasures, the latest of which was Tuesday’s ban on the export of dual-use items for military use.
“Such a measure, which only targets our country, differs significantly from international practice, is absolutely unacceptable and deeply regrettable,” said Japan’s Chief Cabinet Secretary, Minoru Kihara, at a daily press conference on Wednesday.
He declined to comment on the possible impact on Japanese industry, saying it remained unclear exactly which items would be targeted.
Market reaction to the news was relatively muted although Japanese shares were lower on Wednesday, bucking the global trend that sent US and European benchmarks to record highs.
Japan’s broad Topix gauge of equities fell 0.55%, with a subindex of mining shares leading the decline, down 3.2%.
NEXT RARE WORLD RESTRICTIONS?
China Daily, a newspaper owned by the ruling Chinese Communist Party, reported on Tuesday that Beijing was considering tightening license review of rare earth exports to Japan more broadly, citing sources with knowledge of the matter.
Such a move could have major implications for the manufacturing powerhouse, including its core auto sector, analysts say.
While Japan has sought to diversify its supply of rare earths since China halted exports of the mineral in 2010, about 60% of its imports still come from China.
A three-month curb on Chinese exports of rare earths, like the one seen during 2010, could cost Japanese businesses 660 billion yen ($4.21 billion) and shave 0.11% off annual gross domestic product, Nomura Research Institute economist Takahide Kiuchi said in a note on Wednesday.
He added that a one-year ban would bring in 0.43% of GDP.
So far, China Customs data has shown no sign of a decline in rare earth exports to Japan, although the data is released with some delay. In November, the latest month for which there was data, exports grew by 35% to 305 metric tons, the highest amount of last year.
($1 = 156.6800 yen)
(Reporting by Satoshi Sugiyama, Kantaro Komiya, Tim Kelly and Rocky Swift in Tokyo; Liz Lee and Lewis Jackson in Beijing; Writing by John Geddie; Editing by Michael Perry)