Highlights
- China controls approximately 70% of global rare earth element production through strategic government policies and centralized industry management.
- China’s overseas expansion into Africa, Southeast Asia, and South America aims to diversify resource supply and address domestic resource constraints.
- The rare earth elements sector reflects China’s long-term strategic approach to maintaining technological and economic dominance in critical mineral supply chains.
Tinzar Htun (opens in a new tab), PhD with Colorado School of Mines, is a Fulbright Scholar previously employed as a consultant for the World Bank on the Extractive Industries Transparency Initiative for five years before coming to graduate school. Tinzar has also worked with different organizations on the China-Myanmar-EconomicCorridor (Belt Road Initiative) and decentralization in Myanmar. She earned her Bachelor’s in Sustainable Development from Ritsumeikan Asia Pacific University in Japan and a year ago authored an important piece titled “China’s Consolidation ofRare Earth Elements Sector.”
Published in the Colorado School of Mines’ The Payne Institute for Public Policy (opens in a new tab) commentary series, the author examines China’s consolidation of the rare earth elements (REEs) sector, highlighting its dominant role in global REE production, processing, and downstream supply chains. Rare Earth Exchanges attempts here to make the important analysis and point of view available to more people interested in the topic.
China Dominance in REE
Chinaproduces approximately 70% of the world’s REEs and controls nearly all REE separation and processing, giving it near-monopolistic influence. This dominance is attributed not only to its significant domestic reserves but also to decades of strategic government policies, including research investment, stricter environmental standards, industry restructuring, and crackdowns on illegal mining. While we have argued in Rare Earth Exchanges Western governments were willing participants, as this predominance did not happen overnight.
In fact, Ms. Htun educates the reader that efforts to consolidate the fragmented industry began in the early 2000s but gained momentum in the 2010s, culminating in the creation of the China Rare Earth Group in 2021.
This conglomerate, centralized control over the industry, allowed for greater oversight of pricing, production, and environmental standards. Despite these achievements, challenges such as illegal mining, regional resistance, and limited price negotiation leverage remain.
Global Expansion
China’s overseas expansion in Africa, Southeast Asia, and South America is another key aspect of its strategy, aimed at diversifying resource supply and addressing domestic challenges like declining ore grades and rising environmental compliance costs. State-owned enterprises have invested in mining projects globally, often navigating local and environmental opposition. Increasingly feasible environmental challenges are externalized to other parts of the world as part of the quest to control sourced raw material.
This consolidation and expansion reflect China’s strategic focus on maintaining its dominance in REE supply chains as global demand for these critical minerals increases due to their importance in clean energy, defense, and technology sectors.
What are some key hypotheses and underlying assumptions made herein?
First, global demand for REEs will only grow. Ms. Htun assumes sustained and increasing demand for REEs to their use in technologies critical to the energy transition and defense sectors.
But on this topic Rare Earth Exchanges has raised the question: what if the incoming POTUS disrupts the Paris Agreement and other anti-carbonation programs? What if electric vehicles sales are slow or are even stopped? Will this slow down electric vehicle sales?
Another assumption made by the author: that China’s Dominance is Strategic and Durable: It is hypothesized that China’s centralized control and policy-driven approach will enable it to maintain dominance despite potential geopolitical and market challenges.
But as chronicled here at Rare Earth Exchanges, we are observing some underlying contradictory challenges in this centralized, top-down model, manifesting in the need for enterprises to learn about innovation from an unlikely source, Xi Jinping, the Chinese politician who has been the general secretary of the Chinese Communist Party (CCP) and chairman of the Central Military Commission (CMC), and thus the paramount leader of China, since 2012. Xi has been serving as the 7th and current president of China since 2013 and has issued a series of mandates for REE complex state-owned firms to modernize, become more competitive and the like.
Does anyone see the irony and paradoxical dynamic in this unfolding reality? There are many factors, dynamics, and forces that top-down, command and control paradigms won’t be able to foresee, nor ultimately control over the long run.
Another key presumption centers on the idea that overseas expansion secures future supply. The analysis assumes that China’s global investments will shield it from domestic resource constraints and environmental regulations, not to mention bloated, increasingly troubled state-owned firms, which could be partially true, but may not be totally the case given other internal contradictions and conflicts within the rare earth enterprise within Mainland China.
What biases are present in the paper?
First and foremost an emphasis on China’s centralized control. The commentary focuses heavily on China’s success in consolidating the REE sector, potentially underemphasized external challenges, such as resistance from local governments, environmental opposition, or geopolitical tensions, or for that matter intense moves by myriad Western and other governments to disrupt the current state-owned rare earth complex in China. What if Western governments start borrowing more Chinese principles?
It’s a dynamic, decentralized world increasingly in many regards, and while acknowledging international competition, the analysis may understate efforts by countries like the US, Japan, and the EU to diversify supply chains or develop alternative REE processing capabilities.
Also, the paper assumes that China’s investments in foreign REE projects will be successful, despite political risks and growing scrutiny of China’s influence in resource-rich regions.
And of course, a second Trump presidency is not addressed (given timing of the paper), but make no mistake, likely the incoming POTUS could take unconventional steps, and as we have pondered in Rare Earth Exchanges, don’t be surprised if the incoming Trump disrupts U.S. involvement with the Paris agreement, electric vehicle mandate deadlines and the like. This could have a more profound impact on REE sectors than many experts might think.
While the commentary mentions environmental regulations, it does not deeply analyze the ecological costs of China’s mining practices or its overseas ventures. And these costs, known as externalities in economics, are dearly expensive in some cases.
While Ms. Htun’s analysis provides valuable insight into China’s rare earth strategies, perhaps future analyses would also benefit from a more balanced exploration of global countermeasures and the broader geopolitical, environmental, and social implications of China’s dominance in the REE sector, not to mention the disruptive force that could be the next American president.
Daniel
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