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The Chinese government announced it will soon restrict the export of three grades of graphite, a key ingredient in EV batteries and nuclear power plants, in retaliation for U.S.-led restrictions on technology sales to Chinese companies.

China's Ministry of Commerce and the Customs Administration said in a joint statement on Friday that the new export controls will go into effect on December 1st and were introduced on "national security" grounds.

These latest restrictions are similar to those imposed in August for the chip-making metals gallium and germanium.

While Chinese authorities were upfront in acknowledging the new graphite measures are a direct response to last week's move by the Biden administration to limit sales of advanced semiconductors to Chinese companies, Beijing also wanted to make it clear the move is not part of an effort to weaponize the EV battery metal supply chain.

Those assurances, though, will probably come as little comfort to both policymakers and automakers in G7 countries that have become increasingly concerned China is willing to leverage its dominance in both mining and refining of critical minerals used to make EV batteries and other technologies.

Like so many of the other metals and minerals in the EV battery metal supply chain, China is by far the dominant actor in the graphite sector, where it produces 70% of the world's supply.

Reaction to China's New Graphite Export Controls

• LOOK FOR NEW SUPPLIERS: "Graphite markets have been in oversupply, with falling prices, so the export licenses don’t make sense from a market standpoint. They will worry the West, however, and be a boon to up-and-coming producers outside China" -- Andy Leyland, CEO of Supply Chain Insights (REUTERS)

• NOT A FULL BAN BUT...: "It would be a bold step to cut off the world from graphite because I think the Chinese know that would bring EVs to a halt everywhere and probably would create escalation rather than de-escalation of some of the trade disputes going on with China - between the EU and China, between the U.S. and China" -- Christopher Richter, Deputy Head of Research at CLSA in Tokyo (EURONEWS)

• MEASURES NOT AIMED AT U.S.: "I believe that the decision to adjust these measures is solely based on the development of the industry, without any other consideration to target a third party. We must learn from China's experience with rare earths, and not excessively exploit and export them at low prices" -- Sun Qing, Honorary President of the China Carbon Industry Association (GLOBAL TIMES)

WHY IS THIS IMPORTANT? Developing countries that export the raw materials used to manufacture EV batteries could benefit a lot from these escalating supply chain tensions between G7 countries and China:

1. Any new restrictions on these commodities could help boost prices for graphite and other critical resources, including nickel, cobalt and lithium, which have all been in the doldrums for the past year.
2. G7 countries are going to be more determined now to find alternate suppliers for these resources that could drive a lot of new investment in both mining and refining in countries with abundant supplies of these metals.

SUGGESTED READING:

• Bloomberg: China Tightens Export Controls on Battery-Making Graphite
• Global Times: China strengthens export controls on graphite, a vital material for EV batteries, to protect national security

The Chinese government plans to fortify its stockpile of cobalt, a critical resource used to manufacture electric vehicle batteries.

Insiders tell Reuters that the Strategic Reserves Administration plans to purchase 3,100 metric tons of the blue metal in a move likely timed to take advantage of a prolonged market downturn for cobalt.

Prices today are at around half of what they were a year ago.

While other major economies like the U.S. have strategic reserves for oil, China maintains similar reserves for a number of key commodities, including wheat, copper, aluminum, zinc and cobalt.

China's current cobalt reserve is estimated to be between 5,000-7,000 metric tons but it's difficult to know the precise quantity since the government does release that kind of information.

WHY IS THIS IMPORTANT? China's cobalt reserve is potentially problematic for Beijing's G7 rivals that want to build alternate supply chains for EV battery metals. Those advanced economies, though, are all relying on private mining companies that are price sensitive.

So, China has an incentive to keep the price of cobalt and other battery metals low in order to keep their challengers out of the market and challenge Beijing's firm grip on the supply chain.

And if the price goes up to the point where Canadian, U.S. and Japanese mining companies, among others, want to get into the market, the Chinese have the option to push them out by releasing some of their strategic reserves to suppress the price.

SUGGESTED READING:

• Reuters: China's state reserve expected to buy 3,100 T of cobalt - sources
• Bloomberg: China Set to Boost State Cobalt Reserves After Tumble in Prices by Annie Lee and Alfred Cang

Despite all of the talk over the past year of China's ambitions to be a major player in brokering Mideast peace, Beijing's Special Envoy to the region, Zhai Jun, was largely absent from the emergency discussions on the Israel-Gaza war that took place in Cairo on Saturday.

Arab and European foreign ministers spoke at length during the Cairo Summit for Peace that aimed to de-escalate the fighting in Gaza, while Zhai and the Chinese delegation did not speak.

On Monday, Zhai stated the obvious when he said the situation in Gaza is "very serious" and that the prospect of a wider war that includes Lebanon and Syria is "worrisome."

Latest China-Mideast War Headlines:

• PLA NAVY PRESENCE: China now has six navy warships operating in the Middle East, including an advanced guided-missile destroyer. The flotilla is part of the multinational task force combatting piracy off the coast of Somalia. (SOUTH CHINA MORNING POST)

• CIVILIAN EVACUATIONS: China's Foreign Ministry said 1,000 of its nationals have been evacuated from Israel and Gaza, including 280 people who were stranded in the southern Israeli city of Sderot when the fighting began on October 7. (REUTERS)

• PALESTINIAN SUPPORT: Foreign Minister Wang Yi told his Malaysian counterpart Zambry Abdul Kadir on Friday Beijing will always support the "legitimate aspirates of Arab and Muslim countries" -- providing another endorsement of the Palestinian cause in the ongoing conflict with Israel. (SOUTH CHINA MORNING POST)

• RUSSIA-CHINA ALIGNMENT:  Russian diplomats confirmed they are coordinating with China on their response to the worsening situation in the Middle East. Both Moscow and Beijing are also aligned in blaming the United States for the crisis. (REUTERS)

WHY IS THIS IMPORTANT? China has made a tactical diplomatic decision to fully align itself with Arab and Muslim countries in the war, effectively ending any notion that it could ever serve as a neutral arbiter in a future Israeli-Arab peace settlement.

The choice to coordinate its response with Russia also indicates that China clearly sees the war as part of its escalating rivalry with the United States.

SUGGESTED READING:

• Reuters: Analysis: China and Russia find common cause in Israel-Hamas crisis by Yew Lun Tian, Laurie Chen and Michael Martina
• The Washington Post: Where China stands on the Israel-Gaza war and what it stands to gain by Christian Shepherd and Lyric Li

China was much slower than the other major powers to respond to the October 7 terrorist attack by the Islamic militant group Hamas against civilian populations in southern Israel.

The following week, when Chinese Foreign Minister Wang Yi laid out Beijing's position on the conflict, many in Israel, the U.S., and European countries were unhappy that he did not specifically condemn Hamas by name and re-stated Beijing's longstanding position that calls for the creation of an independent Palestinian state -- aka "the two-state solution."

Critics felt China's response was tone deaf in light of the horrors that transpired in southern Israel but it turns out that Beijing's position was fully aligned with that of the Arab world and the overwhelming majority of Global South countries.

Early on in the conflict, Fan Hongda, a professor at the Middle East Studies Institute of Shanghai International Studies University and widely regarded as one of China's foremost scholars on the region, expressed bewilderment as to why there was so much criticism of China's response.

Fan then later expanded on his social media posts with an article on the Asia-Pacific news site The Diplomat, where he laid out the context for China's position and identified the points of friction with Israel, in particular:

• DIVERGENT ISRAEL-CHINA OBJECTIVES: "Israel emphasizes the current outbreak of this specific conflict, while China emphasizes the fundamental path to resolve the question of Palestine. The two have different focuses."

• THE TWO-STATE DILEMMA: "The two-state solution to the question of Palestine is advocated by the United Nations and most countries in the world. Even Western powers like the United States and the United Kingdom support this. It is not advocated by China alone. However, because this solution requires Israel to return a large area of occupied land to the Palestinians, there are many people in Israel who oppose the two-state solution."

• THE ROLE OF U.S.-CHINA COMPETITION: "Great power competition is thus inevitably coloring perceptions after the outbreak of the Gaza-Israel conflict, which may have an important impact on the Middle East."

WHY IS THIS IMPORTANT? Professor Fan's genuine confusion as to why Israeli and Western stakeholders were unhappy with China's response to the crisis reveals the wide knowledge gaps that exist within large swathes of Chinese academia.

Just as there is a negative narrative about China that's prevalent in the Western discourse, the same is true in China about the West (which Israel is seen as a part of) and often leads to poorly-informed analysis.

SUGGESTED READING:

• The Diplomat: China’s Attitude Toward the Israel-Gaza War by Fan Hongda
• Foreign Policy: The Israel-Hamas War Is Testing China’s Diplomatic Strategy bu Lili Pike

Boston University Global Development Policy Center Director Kevin Gallagher was one of only a handful of U.S. stakeholders invited to participate in the Belt and Road Forum that just wrapped up in Beijing.

Kevin joined CGSP Editor-in-Chief Eric Olander for a quick 5-minute debrief to discuss what the news didn't cover and why he was surprised by some of the announcements.

While overall attendance at this year's Belt and Road Forum in Beijing was robust, the participation of heads of state and leaders of international organizations was down dramatically from the first forum in 2017.

In fact, so few leaders attended this year's event that organizers invited the spouses of some of the presidents and prime ministers to also join the "family photo" just to fill it out a bit.

Kenyan President William Ruto issued a direct appeal to Chinese investors to finance the extension of the Standard Gauge Railway (SGR) to the Ugandan border.

The president explained that completing this last portion of the railway would unlock significant economic opportunities throughout East Africa.

“The reason why we are discussing with China is we want to connect the eastern coast [of] Africa to the western coast of Africa,” he told a packed auditorium at the Kenya-China Investment Forum in Beijing that took place on Tuesday on the sidelines of the Belt and Road Forum.

The president added that leaders from Congo-Brazzaville, DR Congo and Uganda are all behind the effort.

But it's going to be a tough sell, though.

China had originally planned to finance the railway all the way from the Port of Mombasa to the Ugandan border but then balked when the project's costs ballooned beyond $6 billion.

Despite repeated pleas from Kenya to finance the last phase of the railway that stopped in the middle of a largely rural area in the Rift Valley, Chinese creditors held firm and refused.

Now, the president wants to use a public-private partnership to finance the extension similar to the model used with the China Road and Bridge Corporation to build the 27km Nairobi Expressway.

WHY IS THIS IMPORTANT? The original idea of the SGR was to serve as a giant funnel that would facilitate cargo transport to/from across East Africa to the Port of Mombasa. But that never happened because it dead-ended in Naivasha -- dubbed the "Middle of Nowhere." 

The president has got to find a way to get this last part of the project financed so he can boost the railway's revenues and pay down the billions owed to Chinese creditors.

SUGGESTED READING:

• Nation: President Ruto pitches for SGR linking African's east and Western coasts by Aggrey Mutambo
• Citizen Digital: Kenya Seeking Funds To Extend SGR To Malaba by Francis Mtalaki

With the Belt and Road Forum in Beijing now wrapped up, some of the world's top China analysts are beginning to reflect on the key themes that emerged at this year's event and what it says about the future of Belt and Road.

Richard McGregor, a senior fellow at the Lowy Institute in Australia and a prominent China journalist/author, told CNBC on Tuesday that it's evident the Belt and Road as we know it, is now over:

This meeting is sort of backward looking and forward looking. It's backward looking in this respect: the BRI, as we know it, is basically over and we're moving into a new era these days where it's smaller, quality over quantity...

Most of the countries that China has lent to can't borrow anymore. So, they're not going to do big projects. China's issue now with many BRI countries [like] Uganda Zambia, Sri Lanka, Laos and some islands in the Pacific is how to pay the money back not to borrow more money. So, that big part of the BRI is over.

We're now moving to a new era where China is putting its ideas for an alternative world order on top of what it's done with the BRI, Global Development Initiative, Global Security Initiative and the like, and you see that in the meeting in Beijing at the moment.

Watch the full interview with Richard McGregor on CNBC's YouTube channel.

Among the dozens of leaders attending this week's Belt and Road Forum in Beijing, few are under as much pressure to deliver tangible results from the event as Kenyan President William Ruto.

Back home, the Kenyan economy is in serious trouble amid rising unemployment, surging national debt and a currency that sunk to a new record low against the dollar this week.

So, it's not surprising then that the President is devoting most of his energy during his three-day visit to China to promote his economic agenda in the hope of securing more Chinese investment and development finance.

Ruto hit the ground running on Monday, crisscrossing the Chinese capital to meet with senior corporate and Communist Party officials:

• BUSINESS DEVELOPMENT: Ruto met with Li Xi, one of the Communist Party's most senior and powerful officials, to signal that Kenya is fully aligned with China's overseas economic development agenda. (XINHUA)

• ENERGY INFRASTRUCTURE: The President oversaw the signing of an MOU with the China Energy International Group to upgrade Kenya's electric power system. Details of the agreement were not released. (THE STAR)

• TELECOMMUNICATIONS INFRASTRUCTURE: Ruto also oversaw the signing of a second MOU, this time with telecommunications giant Huawei, to bolster Kenya's national digital infrastructure with new services in health, transportation, education and e-government. (THE STAR)

The real test, however, is going to come on Tuesday and Wednesday when Ruto meets with President Xi Jinping and later sits down with officials at China's largest policy banks to discuss a new billion-dollar loan for road construction and the need to restructure the estimated $6 billion of debt Kenya still owes these banks.

Both are very big requests in the current environment.

The days when Chinese policy banks granted billion-dollar loans to African countries are over. Chinese lenders issued less than a billion dollars of loans to the entire African continent in 2022, according to new data from Boston University's Global Development Policy Center -- making it highly unlikely the policy banks will reverse that trend for Kenya.

As for the debt, so far, the China Exim Bank, which owns most of the debt in question, has been surprisingly inflexible with Kenya by refusing repeated requests to defer repayment. Given the economic difficulties Kenya is now facing, China Exim may be more accommodating, but there's certainly no guarantee.

WHY IS THIS IMPORTANT? Ruto's push for more financing and investment from China will serve as an important bellwether to determine the effectiveness of his economic development agenda and how much Chinese stakeholders are willing to commit to Kenya and Africa more broadly.

SUGGESTED READING:

• The Standard: Why Taiwan is a diplomatic hot potato for China and will likely appear during Ruto's, Xi talks by Mwangi Maina
• Nation: On China trip, Ruto to test his economic diplomacy by Aggrey Mutambo and James Anyanzwa