Highlights
- China has built a vertically integrated rare earth monopoly through state-directed strategies, subsidies, and control of heavy rare earth elements.
- The report exposes China's comprehensive advantages, including tax structures, workforce expertise, and strategic global resource acquisition.
- U.S. rare earth independence remains challenging without addressing heavy REE supply, intellectual property, and comprehensive industrial policy.
First published in 2023 and no less relevant today, Rare Earth Exchanges (REEx) reviews a report (opens in a new tab) titled “CHINA’S RARE EARTH SUBSIDIES AND STRUCTURAL ADVANTAGES A Comprehensive List of China’s Advantages That Must Be Overcome for Any U.S. or Allied Rare Earth Project’s Success.” One that is one of the clearest, most unflinching look yet at how China built — and still wields — its rare earth monopoly. Over four decades, Beijing has locked up the REE supply chain through a lattice of “hard,” “soft,” and “structural” advantages. Some are blunt-force economics, like a value-added tax (VAT) that punishes oxide exports and rewards finished magnets, keeping high-value processing inside China. Others are strategic choke points — namely, absolute control over heavy rare earths like terbium (Tb) and dysprosium (Dy), the irreplaceable ingredients for high-temperature NdFeB magnets used in EVs, wind turbines, and military hardware.
What’s the result? A vertically integrated, state-directed machine that can underprice, outproduce, and outlast any challenger.
The authors — an array of industry veterans, scientists, and policy analysts — didn’t just skim headlines; they conducted a forensic audit.
They mapped China’s rise from 1980 to 2023, dissected U.S. and IAEA thorium regulations that quietly strangle non-Chinese heavy REE output, and modeled how subsidies, VAT, and cheap state-backed capital skew market economics. They even quantified the talent gap:
Importantly and highly relevant, China’s commercial REE workforce exceeds 300,000, with over 12,000 dedicated researchers, versus America’s roughly 400 industry workers and fewer than 200 research FTEs at the time. When counting all touch points of the ex-China rare earth labor force, Rare Earth Exchanges suggests it’s in the several thousand now. MP Materials along has over 800 employees.
The authors backed this with case studies of Molycorp, Lynas, MP Materials, and U.S. legislative efforts like H.R. 5033 and H.R. 2849 — showing how well-meaning policy often misfires.
Their findings are blunt. Four state-owned enterprises operate like a “Federal Reserve of Rare Earths,” using overcapacity, internal competition, and price manipulation to crush foreign entrants. No realistic non-Chinese source of Tb/Dy exists, largely thanks to geology and regulatory blocks on thorium-bearing ores — a silent keystone in China’s magnet dominance. Monopoly pricing power is baked in through VAT rebates on finished magnets and penalties on raw materials.
And by controlling heavy REEs, China forces foreign magnet intellectual property into its borders via joint ventures or relocation. Even U.S. tax credits risk backfiring, subsidizing low-grade Ce+NdFeB magnets for novelty markets while leaving EV and defense supply chains dependent on Beijing.
For investors, the commercial implications are sobering. Although, since then, with Trump 2.0, a flurry of executive orders, a 232 Action with a report due this month, and an unprecedented Department of Defense and MP Materials deal may start the process of resilience, but it will be a long journey, longer without an integrated, comprehensive industrial policy.
Will American government price floors make a difference? That and more is needed. Otherwise, any upstream-only REE play is essentially a price-taker at China’s mercy. Magnet manufacturing without a secured heavy REE supply is a low-margin trap. Policy incentives can briefly boost valuations but, if designed poorly, will deepen China’s grip while creating false investment narratives.
Meanwhile, Beijing’s Belt and Road Initiative is locking in heavy REE feedstock from Africa, Southeast Asia, and beyond, further shutting the door on rivals.
The report isn’t perfect. Its framing is heavily U.S.-centric; some workforce and capacity data remain estimates, and a few authors have skin in the game through heavy REE holdings. Still, the breadth of evidence makes its warnings hard to dismiss.
REEx suggests that the bottom line for investors is clear: betting on rare earth “independence” without cracking the heavy REE and VAT stranglehold is gambling, not strategy. The real opportunities lie in policy-aligned, fully integrated, heavy-REE-capable supply chains — or in companies poised to profit from the reality of dependence rather than the illusion of breaking it.
| Author | Background |
|---|---|
| Dr. George Bauk (opens in a new tab) | Executive Director of PVW Resources Limited and researcher and author for a number of EU policy groups—now Peninsula Energy Limited |
| Dr. Anthony Caruso (opens in a new tab) | Professor of Physics and Electrical Engineering, Associate Vice Chancellor for Research at the Missouri Institute for Defense & Energy |
| Pete Chin (opens in a new tab) | At the time studying critical material supply chain security as a Hoover Institution Veteran Fellow and earned an MBA from the University of Oxford, a master of international affairs from Columbia University focused on international security with a specialization in the Middle East, and a BA from the University of Chicago in international relations ( |
| Dr. James Conca (opens in a new tab) | Trustee of the Herbert M. Parker Foundation of WSU, a 40-year expert in energy and nuclear power with a PhD in Geochemistry from Caltech |
| Dr. Sotiris Kamenopoulos (opens in a new tab) | PhD from Technical University of Crete, Greece, School of Mineral Resources Engineering. Dr. Kamenopoulos’ field of research is related to sustainable exploitation of mineral resources and Social License to Operate |
| James Kennedy (opens in a new tab) | International consultant for rare earth mining projects and financial institutions: ThREEConsulting.com. Also consults on thorium regulations and energy systems. |
| John Kutsch (opens in a new tab) | Executive Director of the Thorium Energy Alliance |
| Jack Lifton (opens in a new tab) | Rare Earth and Critical Materials Expert, Editor and Chief of Investor Intel Critical Materials Section |
| Dr. Ned Mamula (opens in a new tab) | PhD Geology, former USGS, mineral resource geologist, and Author of “Groundbreaking!” America’s New Quest for Mineral Independence, 2018; GreenMet |
| Guillaume Pitron (opens in a new tab) | An award winning French journalist, author, researcher, documentary film maker and author of The Rare Metals War, originally released in 2018 |
| Dr. Marina Y. Zhang (opens in a new tab) | BSc (PKU), MBA and PhD (ANU), Associate Professor, Research. Australia-China Relations Institute (ACRI) University of Technology Sydney |
| 6 Anonymous Contributors | These contributors are currently working in the REE magnet production industry, REE material trading, two who act as industry consultants (one of them an international REE magnet patent expert, someone associated with a U.S. heavy REE project and one academic/researcher (partially funded by China). None want to jeopardize their business, employment, or professional relationships so they have elected to remain anonymous |
Thorium Energy Alliance. (2023, May 2). China’s Rare Earth Subsidies and Structural Advantages: A Comprehensive List of China’s Advantages That Must Be Overcome for Any U.S. or Allied Rare Earth Project’s Success. Retrieved from Thorium Energy Alliance: https://thoriumenergyalliance.com/wp-content/uploads/2023/05/ChinaSubsidiesStructuralAdvantages-ReleasedMay2.23.pdf (opens in a new tab)
0 Comments