Intersections

Intersections is a news digest describing the People's Republic of China's (PRC's) technology acquisition and defense industrial base development efforts, US and partner nation responses, and critical and emerging technology risks with military implications. Issue 15 considers the military and security dimensions of China's export controls of rare earths and US advanced chip technology, PRC efforts to build out commercial satellite constellations to rival Starlink, and recent illegal activities that threaten US security interests.

This issue will be our last for now as we take a hiatus in publishing. We hope to bring you more updates on US-PRC technological and industrial base competition in the future. In the interim, please refer to previous issues.

US AND CHINA EXCHANGE EXPORT CONTROLS

Trade tensions, trade restrictions, and export controls continue to be features of the US-China relationship. US-China trade tensions have entered a new phase, with each country issuing a tit-for-tat sequence of tariffs and other restrictions. The US and China temporarily suspended tariffs on May 12 in preparation for more substantive trade discussions, and during meetings on June 9, 10, and 27, officials from the two countries reaffirmed and built upon the agreement made in May. On July 3, according to Reuters, the US "lifted restrictions on exports to China for chip design software" in exchange for "concessions from Beijing over rare earths." The situation remains fluid, and US-China trade relations continue to evolve as of this issue's publication.

Each country has relative technological and industrial advantages, and each country (sometimes in concert with allies and partners) is trying to reduce the advantage of the other. In the following stories, we explore trade restrictions and efforts from the PRC, the US, and US partners to blunt their effects.

CHINA RESTRICTS EXPORTS OF RARE EARTH MINERALS

China's export controls on rare earth minerals threaten US defense supply chains. On April 4, 2025, China placed restrictions on the export of seven rare earth elements (see Table 1). The new restrictions were issued shortly after the Trump Administration placed reciprocal tariffs on China. Any exports of the listed rare earths, or magnets made from them, would require a special export license. China has allowed some shipments of the restricted rare earth elements to the US. However, as noted by an unnamed Air Force official cited by the New York Times, the restrictions function as a "heads-up" shot, allowing China to demonstrate how it could harm US supply chains while also leaving room for escalation.

The rare earth elements targeted by China are key inputs in multiple military systems. Magnets that contain rare earth materials subject to the new restrictions are used in fighter jets, precision-guided missiles, and drone motors. According to commentary published by the Center for Strategic and International Studies, China has nearly monopolized production of the types of rare earth elements targeted by the new restrictions, specifically medium and heavy rare earths. In fact, a 2022 supply chain assessment released by the Department of Energy assessed that China possessed around 58 percent of the world's rare earth mining capacity and roughly 89 and 90 percent of the world's rare earth separation and refining capacity, respectively. Although the US domestically produces some rare earth minerals, it does not currently produce heavy rare earths. For example, as reported by the Financial Times, MP Materials, a prominent US rare earth mining company, has not yet been able to process the heavy rare earth elements dysprosium and terbium, which are needed for the high-performance magnets that go into F-35 fighter jets. Dysprosium and terbium are among the rare earth elements subject to the new export restrictions.

Although licensing requirements for some rare earth elements are new, China's strategy of restricting critical mineral exports is not (see Table 1 for a summary). As covered inIntersections Issues 5 and 6, in July 2023, China's Ministry of Commerce and its Customs Administration put licensing requirements on the export of gallium and germanium. By February 2025, China had put initial controls or outright bans on the export of at least seven additional minerals.

Table 1. PRC export controls on critical minerals

Australian company processes heavy rare earths outside of China. The Australian mining company Lynas announced on May 16 that it had produced the heavy rare earth dysprosium at a refinery in Malaysia for the first time. The announcement represents a milestone in efforts to build a critical minerals supply chain that avoids exposure to China. China is the primary commercial source of heavy rare earths, such as dysprosium, which are more difficult to process than light rare earths. If Lynas successfully scales up production of dysprosium and other heavy rare earths, it could reduce China's supply chain dominance.

Lynas' success in refining heavy rare earths illustrates a major challenge China is facing in attempting to weaponize its supply chain dominance: despite their name, rare earths are not particularly rare. Instead, their global supply is limited by the difficulty in refining and processing them. Although establishing non-PRC processing locations for rare earths is challenging, it is not impossible, and multiple countries are investing in rare earths processing. For example, the Department of Defense (DOD) has awarded millions of dollars to firms seeking to establish rare earth separating, refining, and processing facilities in the US.

NEW US CHIP RESTRICTIONS TARGET AI CAPABILITIES

US increases restrictions on sales of Nvidia, AMD chips to China. On April 15, the US Department of Commerce issued new licensing requirements for artificial intelligence (AI) chips produced by Nvidia and AMD. Among the chips subject to the new restrictions is Nvidia's H20 chip, which was designed as a less powerful version of the company's H100 chip. By reducing the performance of this and other chip designs, Nvidia had been able to sell H20 chips to companies in China while still complying with Biden-era semiconductor restrictions, which were tied to performance thresholds.

This increased stringency of chip export controls follows recent developments in China's AI capabilities. The most notable development, discussed in Issue 13 ofIntersections, was the release of a new AI chatbot by the PRC AI start-up DeepSeek in January. It built this chatbot despite US efforts to restrict China's access to the necessary computing technology. In training its AI model, DeepSeek had access to Nvidia chips, including models subject to export controls and some chips exempted from restrictions. As discussed in Issue 13, the People's Liberation Army (PLA) could apply the DeepSeek chatbot toward military ends, including generating wargame scenarios or augmenting autonomous and uncrewed systems.

HUAWEI, TENCENT, OTHER PRC FIRMS AIM TO CIRCUMVENT CONTROLS

In response to the US announcement of more stringent restrictions on AI chip exports, companies based in China and subject to chip export restrictions are seeking ways to lessen the effects of the restrictions. The following stories illustrate some of the strategies companies are using.

Huawei introduces a new AI server cluster that reportedly rivals Nvidia products. In mid-April, Huawei introduced a new AI server cluster, called the CloudMatrix 384 Supernode, built using the company's Ascend 910C chips. Even though Ascend chips are not individually as powerful as comparable AI chips produced by Nvidia, the CloudMatrix 384 is reportedly able to meet and even exceed the computing power of Nvidia's GB200 NVL72 server cluster. To achieve this power, the CloudMatrix 384 has five times as many chips as the GB200 NVL72—a design solution that has the drawback of requiring much more power to operate.

Although this effort was not a direct response to the most recent US export controls on chips, Huawei's CloudMatrix 384 demonstrates how companies in China are attempting to use innovative, if inefficient, solutions to achieve the technological outcomes that US export controls are intended to prevent. Of note, as covered in Issue 12 ofIntersections, the yield rate of the Ascend 910C chips used in the CloudMatrix 384 is well below the threshold of commercial viability—a cost that the chips' manufacturer, Semiconductor Manufacturing International Corporation, may be able to bear partly because of government subsidies.

Tencent, Alibaba, and ByteDance stockpile billions of dollars' worth of Nvidia AI chips. According to Nikkei Asia, Tencent, Alibaba, and ByteDance have all built up sizable reserves of Nvidia's H20 chips—one of the models that will be subject to new restrictions. Even though Tencent, Alibaba, and ByteDance will now face difficulties in sourcing supplies of high-performance AI chips, their current stockpiles will help them meet increasing demands for AI computing power in China. Tencent has said that in addition to stockpiling high-end chips for use in training AI models, it is also exploring ways to optimize its software to make some AI processes more efficient, allowing the company to efficiently use the chips it has stockpiled.

UPDATE: PRC COMMERCIAL SATELLITE EFFORTS

China's space architecture expands with more low-earth orbit (LEO) launches. China's state-owned and commercial space firms are pursuing LEO constellation projects in the hopes of competing with Starlink, as discussed in Issue 12. In late April, the Shanghai Academy of Spaceflight Technology announced the launch of a Long March 5B rocket that "launched a third batch of Guowang mega constellation satellites." Guowang (国王), or SatNet, is the shorthand name for China Satellite Network Group, which has publicly acknowledged 29 current satellites in orbit and hopes to launch 13,000 LEO satellites by 2034.

China's other main aspiring LEO satellite constellation provider, Qianfan, encounters challenges. Qianfan (千帆, Thousand Sails), which is run by Shanghai Spacecom Satellite Technology and known in English as SpaceSail, has launched 90 satellites. However, not all of the satellites that Qianfan launched in its second batch last fall reached "their target orbit height." One problem with the batch may have been the use of "a different manufacturing supplier." The manufacturer of the second batch of satellites, Shanghai Genesat (上海格思航天), is supported by a wide variety of investors, but it is a relatively new entrant to the commercial space market in China.

China's two emerging LEO constellations have different focuses. Guowang appears aimed at the domestic Chinese market and will likely support national security applications. In contrast, Qianfan/SpaceSail will focus on the international market. It has already signed deals to operate in Brazil, Malaysia, Kazakhstan, Oman, Pakistan, and Uzbekistan, and it plans to sign agreements with more countries.

The PRC government is investing in LEO constellations partly because of its perception of US space architecture. According to a CNA InDepth article on China's space narrative, "Since 2014, the Chinese government has been placing greater attention on developing China's commercial space industry." A separate study notes that PLA analysts assume "Starlink is the capability fulfilling US Space Force (USSF) requirements for resilient space architectures," and this perception has led some PRC experts to argue that China needs commercial space capacity. As a result, some PRC observers have started referring to China's Guowang/SatNet as "China's Starlink."

Space as a warfighting domain adds another dimension to US-China competition. Both US and PRC officials are increasingly considering the possibility of warfighting in space. China has designated space as a warfighting domain and referred to outer space as a "new commanding height of war."

The USSF recognizes the need for "domain control," and the USSF's White Paper on Competitive Endurance states that the US must be able to protect US space assets and "deny an adversary the hostile use of its space capabilities." In US doctrine, domain control is referred to as "space superiority," which is defined "as the ability to conduct all-domain operations at a given time and place without prohibitive interference from adversary space or counterspace forces." In testimony given in April 2025, USSF Chief of Space Operations General B. Chance Saltzman stated that "space is a warfighting domain" and that the USSF will "defend US space assets…from space-enabled attack."

ILLEGAL ACTIVITIES

As previously covered inIntersections, PRC individuals, groups, and organizations affiliated with the Chinese Communist Party and PLA continue to steal US defense technology, hack US government and DOD systems, and conduct espionage activities. This section provides an update on alleged illegal activities targeting the US military, economy, and society that have resulted in US Department of Justice (DOJ) charges.

In May, a PRC and a UK national were charged with smuggling US military technology to China. According to a DOJ press release, beginning in November 2023, two individuals—a UK citizen with US permanent residence and a PRC citizen—attempted to procure US defense articles including missiles, air defense radars, drones, and cryptographic devices. These individuals also allegedly discussed ways to smuggle a cryptographic device to China, including concealing it within various consumer goods such as a blender. Of note, these two individuals were also charged with seeking to harass and intimidate a US resident who sought to protest Xi Jinping's appearance at the 2023 Asia-Pacific Economic Cooperation Summit in San Francisco. The two individuals were ultimately arrested in Serbia after they fled the US. This case highlights how illegal PRC-directed activities can harm US national security interests.

In April, a US citizen pleaded guilty to engaging in fraudulent IT work that granted a PRC-based co-conspirator access to US government systems. Per the DOJ press release, a US citizen in Maryland pleaded guilty to wire fraud charges related to a scheme with unnamed co-conspirators based in Shenyang, China, who hired him to pose as a freelance software developer to gain employment at various US IT companies that have access to sensitive US government systems, including a Federal Aviation Administration (FAA) system used to manage sensitive information related to national defense. The Maryland man successfully gained employment in IT positions open to only US citizens, and he acquired laptops and login credentials issued by these companies, which the co-conspirators in China then used (via remotely connecting to the US laptop) to access the FAA system data and other US government data related to national security.

In March, the US DOJ charged eight PRC technology firm employees and two officials from the PRC Ministry of Public Security (MPS) with hacking US targets, including the Defense Intelligence Agency and Department of Commerce. In March, according to a DOJ press release, 10 PRC nationals were charged with carrying out a "years-long hacking scheme" via the PRC company I-Soon, which developed and deployed sophisticated hacking software against targets worldwide. Its targets included the US Defense Intelligence Agency, the US Department of Commerce, US state governments, various foreign governments, and groups and individuals opposed to the PRC government. From approximately 2016 through 2023, I-Soon, at the direction of China's Ministry of State Security (MSS) and MPS, hacked the targets' emails, cell phones, servers, and websites. I-Soon advertised various software products that enable hacking techniques, including phishing and password cracking, to the MSS and MPS, and it also trained MPS employees to carry out hacking on their own. This case highlights how a growing industry of PRC technology companies is collaborating with the PRC government to enable sophisticated hacking activities that target the US government and US national security interests.