BEIJING - Chinese customs authorities may have taken issue with attempts by two Japanese workers of Fuji Electric Co. to ship abroad processed rare-earth items amid China's tighter export controls on such products, sources familiar with the matter said Thursday.
The two were detained separately in May in the northeastern port city of Dalian for allegedly violating a Chinese law regarding the smuggling of prohibited imports or exports.
The sources said the employees tried to export motors or other processed items from which rare-earth magnets can be disassembled and taken out later.
Processed items from which rare-earth magnets cannot be taken out are exempt from China's tightened export controls, according to an industry source. In the past, violators of the law were sentenced to more than 10 years in prison and fined millions of yuan.
China dominates the global supply of rare earths, which are essential for manufacturing high-tech products ranging from electric vehicles to weapons.
The latest detention of Japanese citizens came amid heightened Sino-Japanese tensions over a diplomatic row following Japanese Prime Minister Sanae Takaichi's remarks on a Taiwan emergency made last November.
In January, China strengthened controls on Japan-bound shipments of dual-use items that can be used for both civilian and military purposes, including rare earths.
Japanese companies face difficulties in procuring rare earths from China as Beijing has been slow to issue the export licenses, affecting some items used solely for civilian applications. Exports of rare-earth magnets to Japan have dropped, indicating the effects of the tighter controls.
The two detained Japanese nationals are a senior official of Fuji Electric's China unit and another employee who is believed to have traveled to Dalian, according to the sources.
The Fuji Electric group manufactures industrial motors and vending machines in China mostly for domestic customers and exports some products.
In Dalian, which is known to be a city friendly toward Japan, the detention of the two Japanese employees has sent shockwaves through the local expatriate community, with some people expressing worries about their future business operations.
Dalian hosts some 1,700 Japanese company bases and about 3,000 Japanese citizens, according to the Consular Office of Japan in Dalian.
A senior official of a Japanese company based in Dalian said it was "surprising" that the two had been detained in the city known to be accommodating to Japanese businesses.
Another employee of a Japanese firm operating in China voiced concern that other companies handling resources could also be targeted.
At a Dalian factory of the Fuji Electric group, a worker said she has no clue about the situation as she has not heard anything about the detention.
The ongoing diplomatic feud between the two Asian neighbors stems from Takaichi's parliamentary comments that suggested an attack by China on Taiwan, a self-ruled democratic island Beijing claims, could prompt a response by the Japan Self-Defense Forces in support of the United States.
