#17 - China’s Expanding Supply-Chain Power

Edited in collaboration with my custom GPT to refine syntax, clarity, and structure for improved readability. I do not express my personal beliefs in this newsletter; instead, I aim only to present and format information sourced from credible external references. That said, this is not intended to showcase my writing skills, but rather to help me stay informed in this industry—and, hopefully, help you do the same.

China’s Expanding Supply-Chain Power

Discussion of China’s influence in global trade usually starts with rare earth minerals, but the country’s leverage now extends far beyond that. Through long-term industrial planning, state subsidies, and scale-driven pricing, Beijing has quietly built commanding positions in lithium-ion batteries, semiconductors, and pharmaceutical ingredients—industries that underpin both modern technology and national security.

Lithium-Ion Batteries

China’s manufacturers dominate nearly every layer of the EV battery supply chain—from the refining of lithium and cobalt to the production of cathodes and anodes. Even batteries assembled elsewhere typically rely on Chinese-made core components. Export controls introduced this year on cathode materials and battery-making equipment suggest China intends to keep its technical edge at home while slowing the transfer of know-how abroad.

Semiconductors

While attention often centers on cutting-edge chips, the older “mature-node” semiconductors used in autos, appliances, and defense systems are where China’s influence is most visible. The country now accounts for roughly one-third of global production capacity at these levels. Recent licensing requirements on exports of gallium and germanium—metals crucial to chip fabrication—have shown how quickly Beijing can test foreign dependence.

Pharmaceutical Ingredients

In medicine, China supplies a large share of the chemical building blocks used in everyday drugs like acetaminophen and ibuprofen. Although Western pharmaceutical brands are often headquartered elsewhere, the underlying active ingredients or precursor chemicals frequently trace back to Chinese factories. That makes healthcare another quiet point of leverage, even if Beijing rarely highlights it publicly.

Strategic Takeaways

• Dependence creates deterrence: Control over essential inputs can serve as a powerful negotiating tool during trade or political disputes.
• Decoupling is expensive: Relocating production or refining capacity out of China often leads to higher costs and longer development timelines.
• Resilience is the new metric: Companies are being judged not just on growth but on how insulated they are from single-country bottlenecks.

Looking Ahead

Expect to see more export-licensing rules, subsidies for domestic technology projects, and tighter oversight of foreign acquisitions. On the other side, Western economies are pouring money into “friend-shoring” and stockpiling critical inputs. The real test will be whether diversification efforts can keep up with China’s ability to scale faster, cheaper, and at greater depth.