Highlights
- China controls 92% of global refined rare earth output and nearly all rare earth magnet manufacturing through strategic industry consolidation.
- The country has invested heavily in processing technologies, owning 99% of global heavy rare earth refining capacity and producing 87-90% of global permanent magnets.
- Beijing’s long-term strategy involves building two rare earth bases aimed at achieving global technological dominance beyond raw material supply.
China dominates the rare earth element (REE) industry from top to bottom. It mines, refines, and turns rare earths into products essential to everything from electric vehicles to fighter jets. Today, China controls approximately 92% of the global refined rare earth element (REE) output and nearly all of the world’s rare earth magnet manufacturing. But how did this happen? And why can’t the West catch up?
The Big Consolidation
Over the past decade, China has reorganized its rare earth element (REE) industry from hundreds of producers into a few state-aligned giants. In 2021, the government merged several companies into China Rare Earth Group, which now controls approximately 60-70% of China’s heavy rare earth element (REE) output. Alongside Northern Rare Earth Group (Baotou) and Xiamen Tungsten, China streamlined its supply chain, aligned quotas, and centralized control.
No Futures, Only Controlled Spot Markets
China operates two official rare earth element (REE) spot markets: Baotou for light REEs and Ganzhou for heavy REEs. But there are no REE futures markets. Beijing maintains tight control over pricing to prevent volatility and speculation. Most deals happen through long-term contracts, and foreign participation is limited.
Processing Powerhouse
China’s real advantage isn’t just mining—it’s midstream processing. The country invested heavily since the 1980s in refining techniques like solvent extraction and ion exchange. It now owns 99% of the global heavy rare earth element (REE) refining capacity. Western nations, by contrast, have almost none.
Even advanced firms like Australia’s Lynas have historically relied on China to finish REE processing. Building comparable facilities in North America or Europe is expensive, slow, and often blocked by environmental concerns.
Environmental Trade-Offs
China’s rise came at a steep ecological cost. Sites like the Baotou tailings lake are infamous for their toxicity. Although regulations have improved, China still employs methods such as in-situ leaching for heavy rare earth element (REE) clays—a process banned in many countries. Western producers face higher costs and stricter regulations, making catch-up efforts more challenging.
Magnet Monopoly
Permanent magnets, especially NdFeB types, are the end product that gives China strategic power. These are used in electric vehicles (EVs), wind turbines, and military systems. China produces 87-90% of the global supply.
Leading Chinese magnet firms, such as JL MAG, Ningbo Yunsheng, and San Huan, are scaling rapidly. JL MAG alone aims for 40,000 tons of magnet output by 2025. Many are building new plants in Baotou, creating vertically integrated hubs. Despite trade tensions, U.S. imports of Chinese magnets have continued to increase. Even Tesla and other Western automakers depend on Chinese magnet producers. Several unfolding dynamics are now underway. REEx will release a top magnet manufacturers ranking.
IP Advantage and Export Incentives
The expiration of key Japanese patents in 2014 allowed Chinese firms to expand rapidly. While Japan still holds valuable IP, China now leads in magnet output. A 13% VAT rebate on magnet exports makes Chinese products even more competitive on the international market.
The Myanmar Factor
China also imports heavy rare earth elements (REEs) from Myanmar, where conditions are dire. Mining in Kachin and Shan states is often conducted by militias with minimal to no environmental oversight. Toxic chemicals contaminate land and water, harming local communities. China effectively outsources pollution while importing critical feedstock.
Long-Term Strategy: Two Rare Earth Bases
Beijing isn’t just playing defense. It’s building two “rare earth bases”: Baotou (light REEs and advanced applications) and Ganzhou (heavy REE innovation). These hubs combine mining, processing, R&D, and manufacturing. The goal? Global dominance not just in raw supply, but in innovation.
Western Weakness
Despite high awareness, Western countries are still years behind. The U.S. reopened the Mountain Pass mine but still sends output to China for processing, although during the trade war, this was halted. MP Materials is building U.S. facilities with government support, but they’re not yet fully online. While REEx calls MP Materials America’s rare earth treasure trove, the firm will need state backing.
Europe and Canada have projects underway, but face delays, permitting battles, and limited scale. Even Lynas, the strongest non-Chinese player, only recently began commercial heavy rare earth element (REE) separation outside China. Australia is arguably the strongest, next to China.
Diplomatic Breathers, Structural Dependence
Trade talks in London (2025) led to temporary Chinese export licenses for U.S. automakers. But these diplomatic pauses don’t fix the core problem: the West lacks midstream and downstream capacity. China can reimpose controls anytime.
The Road Ahead
China’s dominance was no accident. It consolidated its industry, invested in midstream tech, and accepted environmental costs others wouldn’t. It created spot markets, avoided futures, and captured magnet production.
Now, Beijing’s “Two Rare Earth Bases” strategy aims to control not just materials but the future of tech itself. Western countries can reduce dependence—but only with sustained investment, coordinated policy, and public support.
Until then, China remains the rare earth superpower. And the West stays vulnerable.
Rare Earth Exchanges will continue monitoring this global race for control over the elements shaping tomorrow’s economy.
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