China Adds 10 U.S. Entities to Export Controls, Targeting Military, Drones, and Rare Earths

Author: David, Chaoxiang Research

On June 22, the Ministry of Commerce issued Announcement No. 23 of 2026, adding 10 U.S. entities—including Avio克斯, Red Cat Holdings, and MP Materials—to the list of entities subject to export controls, prohibiting the export of dual-use items to them; on the same day, an additional 46 U.S. companies were added to the government procurement restriction list.

(Note: Dual-use items refer to goods, technologies, and services that have both civilian applications and military applications, or that contribute to enhancing military potential.)

This is another round of the normalization of China’s rare earth countermeasures since October 2025, with the 10 U.S. companies named primarily focused on defense, drones, and rare earths.

The two most prominent names on the list are MP Materials and USA Rare Earth—both flagships of U.S. rare earth production. China’s move against them initially sparked a market reaction of bullish sentiment toward China’s A-share rare earth sector: with competitors targeted, domestic players appear even more scarce and valuable.

The issue is that rare earths have been rising since last October, and the leading upstream players are now trading near their yearly highs—has it already become too late to react?

If it's late, where should the money go?

This latest Commerce Department control list affects more than just rare earths. The rare earth sector, despite its significant rally, may still have further catalysts ahead, and lesser-known sectors that haven’t yet moved may not yet be on anyone’s radar.

We have attempted to organize potential influencing factors and plotted them on the price chart for your reference.

① The upstream rare earth sector in A-shares has already priced in the rally; this regulation is not a new catalyst.

Northern Rare Earth is currently trading at RMB 52.9, only about 20% below its one-year high of RMB 63.6; Guangsheng Rare Earth at RMB 115 and Shenghe Resources at RMB 33.6 have both approached their one-year highs. These upstream resource stocks have been rising steadily since October last year, and much of the "rare earth countermeasure benefit" narrative has already been priced in. This latest regulation serves more as a reaffirmation of the existing trend rather than a new catalyst for upward movement in the upstream rare earth industry.

② Relatively underpriced are the mid-to-downstream segments of rare earth magnets and the drone industry chain.

Within the rare earth value chain, valuations in the mid- and downstream segments are significantly lower than those in the upstream segment:

At 30.7 yuan, Dadi Xiong in the magnetic materials sector and 13.7 yuan for Zhenghai Magnetic Materials remain near the lower end of their one-year range, with significant underperformance compared to upstream resource stocks. The drone sector, corresponding to Red Cat and Teal Drones on the control list, is even less active, with China UAV nearing its one-year low and attracting limited market attention. Under the same event, pricing progress across different segments has been inconsistent.

③ The U.S. stocks named may not necessarily constitute a one-sided negative catalyst; confirmation is needed after market open.

MP Materials and USA Rare Earth are core players in the U.S. domestic rare earth supply chain, with MP Materials backed by investment from the U.S. Department of Defense.

For companies in this sector, China’s export controls and U.S. policy support coexist as two forces that may not move in the same direction. None of the three stocks were trading at low levels prior to the announcement; since the announcement was released on Monday before U.S. markets opened, their true pricing response remains to be determined by the market.

Investors holding relevant positions should pay close attention to price movements after the open.

Many people initially find it strange: banning exports should mean fewer business opportunities for Chinese companies—so how is this a positive?

The key lies in the direction of the control. This ban prohibits China from selling rare earth-related items to those 10 U.S. companies, cutting off the supply sources for these American firms, not the raw material procurement of Chinese manufacturers.

China possesses the world’s most complete rare earth supply chain, from mining and separation to magnet manufacturing, ensuring self-sufficiency without reliance on imports from the United States. This means the announcement will not disrupt Chinese suppliers’ upstream operations—they will continue production and exports as usual.

What's truly stuck is the U.S. side.

Companies like MP Materials and USA Rare Earth aim to build supply chains independent of China, yet they still rely on China for separation technologies, equipment, and certain intermediate materials. When their competitors are constrained, it indirectly enhances the scarcity and bargaining power of Chinese manufacturers within the global rare earth landscape—this is the true reason the market interprets it as a positive for A-share rare earth stocks.

First, clarify the supply chain. Rare earths are mined from the ground and then refined and separated into raw materials such as praseodymium-neodymium oxides—this is the upstream segment, handled by companies like Northern Rare Earth, Gansheng Color Metal, and Shenghe Resources.

Raw materials are processed into neodymium iron boron permanent magnetic materials and installed in various motors, which constitutes the mid-to-downstream sector; companies such as Jinli Permanent Magnet, Zhenghai Magnetic Materials, and Dadi Bear operate at this level.

Upstream, raw materials are sold; downstream, magnetic materials are sold.

In this market cycle, capital is primarily flowing upstream. Northern Rare Earth is currently at RMB 52.9, Guangsheng Non-Ferrous at RMB 115, and Shenghe Resources at RMB 33.6—all trading near their one-year highs. The logic is straightforward: each time rare earths’ strategic importance is emphasized, the upstream players with mines and smelting capacity benefit first, as their scarcity is tangible and undeniable.

I believe this regulatory event is broadly positive for the upstream sector, but the price has already largely priced in this expectation; entering now feels like chasing at a high level, and the risk-reward ratio isn't favorable.

Downstream magnetic materials are seeing a noticeable slowdown in pricing progress.

Among the three leading magnetic materials companies, Jinli Yongci has achieved RMB 7.7 billion in revenue with net profit more than doubling; its stock price has risen over 90% since 2025 and is already at a high level. However, Zhenghai Magnetic Materials and Dadi Xiong remain near the lower end of their one-year price ranges, failing to keep pace with the upstream rally.

There is an easily overlooked context:

Since the second half of 2025, China has effectively lifted restrictions on exports of magnetic materials to the U.S.; for example, Jinli Yongci sold 500 million yuan worth of products to the U.S. this year, a 40% increase, while Zhenghai and Dadi Xiong have also obtained export licenses for the U.S. This latest addition of 10 entities to China’s control list is a targeted measure within the framework of allowing ordinary commercial customers while specifically cutting off supply to certain military entities, rather than a comprehensive embargo.

Therefore, this logic has limited impact on the financial statements of the magnetic materials company.

The 10 U.S. companies that were blocked were never on their key customer lists; Jinli Permanent Magnet and Zhenghai Magnetic Materials derive their true revenue from electric vehicle and robotics motors, with little connection to defense exports to the U.S. military.

This regulatory action has primarily boosted sentiment in the magnetic materials sector, but it may not translate into actual orders. However, what I believe deserves more attention among rare earth downstream companies are those whose businesses align with the military theme in this list.

On this point, Dadi Xiong is a better match than the other two.

Da Di Xiong has a small market cap, with 2025 revenue of RMB 1.6 billion and net profit of RMB 57.4 million, but it is a primary domestic supplier of military-grade magnetic materials. Public data shows it holds over 40% market share in this sector, supplying products used in equipment such as jet engines and missiles—directly aligning with U.S. defense and drone companies listed under export controls, making this the most direct narrative link to the current event.

However, a compelling narrative doesn’t guarantee stability: its gross profit margin is only 18%, and its debt-to-asset ratio is nearing 60%, making its profitability and financial cushion thinner than industry peers. Combined with its small market cap, the stock can rise quickly but also plummet sharply.

Suitable for those who can tolerate volatility and prioritize the most authentic theme, not ideal as a stabilizing asset.

Zhenghai Magnetic Materials is a different type. Its net profit more than tripled in 2025, with a stronger reversal than Dadi Xiong, but the driver comes from humanoid robots and new energy vehicle motors, with little connection to this round of defense industry listings. Its low valuation is largely due to the robot narrative not yet being fully priced in by the market.

Therefore, looking at the rare earths chain, the upstream and downstream are in two different situations.

Upstream players hold the most tangible resources and scarcity, but the price has already priced in the bullish factors, leaving it at a high level with continued buying pressure; downstream magnetic materials remain undervalued—Dadi Xiong is more aligned with defense industry lists, though it comes with a small market cap and weak finances; Zhenghai Magnetic Materials is cheaper but has weaker relevance.

Red Cat Holdings and its subsidiary Tier Drone, both on the restricted list, manufacture military reconnaissance and strike drones in the United States—exactly the type of military drone suppliers the U.S. aims to support as alternatives to Chinese products.

The market may associate this with China's A-share military drone sector, but the underlying bullish logic here is likely different from that of rare earths. This does not directly lead to new orders for any Chinese drone company; rather, it brings the U.S.-China competition in military drones to the forefront, prompting the market to reevaluate the strategic value and international competitiveness of China’s domestic military drones.

Following this line, the most closely aligned stock in the A-share market is China UAS.

China UAV is the leading manufacturer of large military drones in China. Its core product, the Wing Loong series of reconnaissance-strike drones, accounts for over 90% of its main revenue and is primarily exported through military trade, serving as the flagship model for China’s military drone exports.

In terms of business alignment, it is indeed in the same industry as the U.S. drone companies named on the list, with the highest relevance among all entries.

It is currently priced at 44 yuan, at the lower end of its one-year range, but this level resulted from a decline from a high point, not from an unstarted upward movement.

The 2025 financial report shows that the company’s performance surged alongside a significant increase in defense trade orders, with revenue more than tripling year-over-year in the first nine months; the stock price once reached 48 yuan, and the current pullback is more akin to a cooling-off following the realization of gains.

It should be noted that defense trade revenue is highly dependent on large, one-time orders; revenue declined by 70% year-over-year in 2024 and turned loss-making, then rebounded strongly in 2025. This boom-and-bust pattern means that judging its valuation based on price levels alone is unreliable—the real variable is the timing and pace of future defense trade contract signings and deliveries. On a valuation basis, the company’s P/E ratio has long remained at dozens of times, which does not indicate undervaluation.

This is the most pressing question for those holding relevant U.S. stocks, and the answer may differ from intuition: not necessarily.

The most significant entities on the export control list, MP Materials and USA Rare Earth, are central to America’s efforts to reduce its dependence on Chinese rare earths. MP Materials is the only large-scale vertically integrated rare earth company in the U.S., and it received an equity investment from the U.S. Department of Defense in 2025, making it a clear beneficiary of national strategic support. This status defines its position as dual-sided:

China has cut off its access to Chinese dual-use items, but due to concerns over supply chain security, the U.S. government may instead award it more orders and subsidies.

The prices prior to the announcement also support this judgment. MP, USA Rare Earth, and Red Cat Holdings were not trading at low levels before the control measures were announced; the market did not preemptively sell off due to the "potential sanctions," and investors had not previously priced them simply as victims.

Of course, the ultimate direction will depend on what the market says. When the announcement was released on Monday, U.S. markets had not yet opened; whether the sanctions were interpreted as a genuine negative or offset by expectations of support can only be determined by trading activity after the open.

Note: This article is an aggregation of information and analytical opinions. All stocks, ratings, and target prices mentioned are sourced from publicly available sources and are current as of the time of publication; they do not constitute any investment advice. The market carries risks, and decisions must be made at your own discretion.