China Restricts Exports to 40 Japanese Entities Amid Rising Tensions

China has implemented export restrictions on 40 Japanese entities, a move signaling escalating tensions between the two nations. The restrictions, announced incrementally since January 2026, target companies involved in sectors critical to Japan’s defense industry and technological advancement, reflecting China’s concerns over Japan’s military buildup and its stance on Taiwan.

Legal Basis for Export Controls

China’s actions are grounded in both domestic and international law. Domestically, the measures adhere to China’s Export Control Law and the Regulations on the Export Control of Dual-Use Items. These regulations were initially broadened on January 6, 2026, to ban exports of dual-use goods to Japanese military conclude-users or for purposes that could enhance Japan’s military capabilities. Subsequent announcements on February 24, 2026, identified specific entities subject to these controls. Internationally, China frames the restrictions as fulfilling its non-proliferation obligations under the Treaty on the Non-Proliferation of Nuclear Weapons, responding to Japan’s moves to relax export of lethal weapons and revise its constitution for military expansion.

Tiered Control System: Restricted List vs. Watch List

The export control system operates on a tiered approach, categorizing entities into a “Restricted List” and a “Watch List.” Twenty companies are on the Restricted List, facing a complete ban on importing dual-use goods from China. These include key subsidiaries of Mitsubishi Heavy Industries (shipbuilding and aircraft engines), Kawasaki Heavy Industries, and Fujitsu. The remaining twenty companies are placed on the Watch List, requiring individual export license applications, risk assessments, and written assurances that exported items will not be used for military purposes.

Targeted Sectors and Entities

The 40 entities span critical sectors, including shipbuilding, aero engines, defense electronics, semiconductor materials, and optical films. Mitsubishi Heavy Industries Shipbuilding and Kawasaki Heavy Industries are major submarine builders for the Japanese Self-Defense Forces. Fujitsu provides software and hardware R&D services to the Japanese military. The list also includes the National Defense Academy of Japan and the Japan Aerospace Exploration Agency (JAXA).

Balancing Security and Trade

China emphasizes that the export controls are designed to strike a balance between security concerns and maintaining normal economic and trade relations. The tiered system allows for continued trade with companies on the Watch List, provided they meet stringent requirements. The measures specifically target dual-use items and identified risk entities, aiming to avoid disrupting broader China-Japan economic cooperation in civilian sectors and global supply chains. A delisting mechanism is also in place, allowing entities to apply for removal from the lists if they demonstrate compliance and cease any activities deemed problematic.

Market Response and Future Outlook

The announcement of these export controls has already had a visible impact on the Japanese stock market, with shares in the defense sector experiencing volatility and declines, particularly for companies like IHI and Kawasaki Heavy Industries. China maintains that these measures are a legitimate response to Japan’s actions, including its evolving stance on Taiwan and its pursuit of military expansion. China calls on Japan to address its concerns, honor its pacifist constitution, and take concrete steps to safeguard regional peace and stability to restore relations to a positive trajectory.