Highlights
- China maintains control over 70% of global rare earth production and 85% of processing, dominating the entire supply chain from mining to manufacturing.
- China’s rare earth dominance stems from years of industrial policy, state-backed capital, and technological innovation, with over 25,000 patents in the sector.
- Western countries face challenges in breaking China’s grip due to environmental regulations, limited processing capacity, and the complexity of reconfiguring global supply chains.
China will not easily let go of control over the rare earth supply chain downstream dominance. Considered a state resource, while the mining represents one important aspect of rare earths, the source—more valuable is the downstream industrial supply chains that nation continues to control for a handful of years now even despite the U.S. and other Western national politics pushing for a diversified supply chain—the processing, refining and magnet production value bundle is where the rubber hits the road.
Yes, there has been a mad dash by the West, led by America, to diversify end-to-end rare earth material supply chains—both upstream and downstream impacting all sorts of incredibly valuable industries. But this ostensibly material change does little to break the grip of China’s hold on truly sustainable processing capability.
Why? Well, it’s just not that simple to reconfigure, or for that matter, dismantle a complex, intertwined global division of labor, of firms, talent, alliances, and interdependencies. Recently Rare Earth Exchanges addressed the case of Malaysia and why it would be unlikely that that southeastern Asian nation would deviate too far astray from Beijing.
After All the existing highly concentrated, integrated dominance China developed was the result of years of applied industrial policy, marshaling state-baked capital to literally control whole markets.
No, much more will be required than new, cursory industrial policy, and somewhat haphazard, opportunistic responses, plus here and there. A directed, integrated longer-term program rich in research and development, in-depth international collaboration, and breakthrough disruption –from technological and process to geopolitical—will undoubtedly be required.
For over three decades China evolved a quite directed rare earth ecosystem, one capturing the know-how, talent and technological capability involving rare earths production andprocessing, manufacturing end use product, and critically, those rareearth magnets.
And throughout this value chain China continues to reinforce a dominant position, although overwhelming dominance has slipped to heavy market power. For example, by 2022 China’s control over global production stood at about 70%, down from over 95% fifteen years ago. Ditto the all-important refining. While the entire United States even till now only has one refining facility (although another one in Wyoming is imminent) China runs about 8% of the world's processing.
Does this mean that China to this day wields monopoly conditions in rare earth space?
Yes. Experts point to control over the processing of several of the heavy rare earths as well as the light rare earths.
While much media in the West points to environmental standards as the reason China’s dominance reigns. This is only part of the story, and frankly, it might be a side comment. Because it’s technology disruption, something the West, especially America, is known to embrace, yet it’s China that uses the research and development as part of its top down, state-sponsored industrial policy to bolster and reinforce its dominant position, especially in production including processing and refining.
As reported in Resources Policy (opens in a new tab) back in 2021 and reported by Rare Earths Exchange China has accumulated over 25,000 rare earth patents easily blowing away the 10,000 added by America during the decade. Moreover, a relentless focus on refining and optimizing processes, such as solvent extraction for the refining process, never mind some of this tech derives from American ingenuity, at least originally.
A Confluence of Factors
Sheer resource and production capacity for example makes China sit on top of the strongest position worldwide. Exploiting its ecosystem with Inner Mongolia a key source, China’s heavy investment in mining and refining capacity, gives the nation a huge significant production advantage.
China supplies 85% or more of the world's processed rare earth elements, as it controls the entire supply chain—from mining to refining and manufacturing high-tech products.
China has developed rare earths as a strategic sector, and this in many ways has a different meaning than in the West. Since the 1990s, the Chinese government has provided massive subsidies and created favorable policies for rare earth industries, which has enabled them to scale production quickly and maintain a competitive edge.
State-owned enterprises (SOEs) and government-backed companies control much of China's rare earth mining, ensuring a coordinated approach that the U.S., with its private-sector-driven model, does not match
Meantime US. Environmental policies and laws for example have made the climate not conducive to rare earth mining, a general activity that leads to potentially environmentally damaging processes, often involving toxic chemicals with radioactive waste output.
China has lower environmental standards than countries like the U.S., allowing for more aggressive extraction and processing without the same restrictions. This has kept China's production costs lower than those in the U.S.
In contrast, environmental concerns have led to stringent regulations and the closure of rare earth mining facilities in the U.S. For instance, the Mountain Pass mine in California was shut down in 2002 due to environmental violations and was only re-opened in recent years
But as we emphasize China dominates not just in raw material extraction but also in the refining and processing of rare earths, which is where much of the value is added. Rare earth processing is highly specialized, and China has developed expertise and infrastructure that other countries, including the U.S., have not invested in.
The U.S. lacks significant processing capacity, meaning even if rare earths are mined domestically, they are often sent to China for refining. This gives China further control over the global supply chain.
China uses its dominant position in rare earths as a geopolitical lever, controlling the supply to influence trade dynamics and secure technological advantages.
And as Rare Earth Exchanges has reported the nation frequently throughout their state-owned media gripes that the U.S. doesn’t play fair, bullies or coerce others, when in fact one could argue the opposite is true in the case of rare earth value chain dynamics.
The final good is where the rubber hits the road, the value-added marketplace to multinational corporations developing some of the world’s most valuable resources.
The rare earth industry is critical for high-tech sectors like electric vehicles, smartphones, and military technologies. China's integrated production and processing capacity give it a competitive advantage in producing materials needed for these technologies.
By controlling this supply chain, China ensures that it has a competitive advantage in emerging industries that rely on rare earths, such as clean energy and defense technologies
China's dominance in rare earth production stems from its vast reserves, government support, lower environmental standards, and a fully integrated supply chain. This has allowed it to maintain a global leadership position, while the U.S. has been hampered by environmental regulations, limited refining capacity, and a lack of investment in this strategic sector.
For Western-based view of change, places like the U.S. will need intensive pushes, leading to changing market forces that over time will overwhelm the current order, in an evolutionary more than revolutionary manner.
Daniel
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