China’s Rare Earth Climb: Study Reveals Fragmented Gains and “Low-End Lock-In” in Global Value Chain

Highlights

• China dominates upstream rare earth production but struggles to capture high-value downstream technologies.
• Spatial and economic analysis shows global rare earth value chains are shifting toward Asia, with strategic opportunities beyond raw material extraction.
• True strategic autonomy requires investment in R&D, technology transfer, and vertical integration across rare earth industries.

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A groundbreaking study by Xiaobing Huang and Jiawei Xie, School of Business and Economics, Gannan Normal University (opens in a new tab), Jiangxi Province, and published in the Journal of Cleaner Production (August 2025) uncovers the evolving spatial and economic dynamics of China’s position in the global rare earth value chain (GVC). Using value-added trade accounting and spatial econometric modeling across 60 countries (2007–2021), the study provides one of the most granular assessments to date of how China’s rare earth dominance plays out across the upstream, midstream, and downstream segments of the industry.

Note, policymakers in the West should pay attention.

Core Findings

• China leads in upstream segments such as mining and smelting—controlling over 60% of global production and 88% of global refining/separation capacity.
• However, China remains weaker than many acknowledge in midstream and downstream high-value-added sectors, including advanced magnet manufacturing and end-use applications.
• The industry exhibits “low-end lock-in,” meaning China’s strong upstream dominance is not translating into proportional value gains further down the chain (this despite many news story to the contrary out of China).
• Global clustering is shifting toward Asia, particularly Central and Southeast Asia, while Europe remains locked into low-end downstream roles.
• China’s rare earth value chain is marked by policy sensitivity and weak internal linkage—front-end gains do not effectively pull forward mid- and back-end innovation.
• Spatial autocorrelation (Moran’s I) reveals that GVC strength is heavily influenced by geographic proximity to resources and economic partnerships, reinforcing the role of location and trade ties in shaping industrial hierarchies.

Implications

For policymakers, this study signals that controlling raw materials is no longer enough. True strategic autonomy in rare earths will require investment in R&D, technology transfer, and vertical integration. China’s “mines-to-magnets” ambition faces structural barriers—namely, the global technological edge held by countries like the U.S., Japan, and Germany in high-performance magnet production and end-use applications.

For investors, the research illustrates that while China will remain a dominant force in extraction and separation, high-margin opportunities may lie outside China—especially in advanced magnetics and component integration for EVs, defense, and wind.  Note this makes sense when considering China’s ambition as reflected in strategic plans translated and interpreted by Rare Earth Exchanges (REEx).

Limitations

• The study’s use of 2021 input-output data may underrepresent recent shifts, particularly post-pandemic supply chain restructuring and geopolitical realignments.
• Disaggregated data on rare earth sub-industries remains limited, making precise segmentation of value creation difficult.
• The model does not fully capture firm-level heterogeneity or informal trade, both of which play major roles in rare earths.

Conclusion

Huang and Xie’s analysis offers critical insight into the stratified nature of global rare earth supply chains—and China’s ongoing struggle to climb the value ladder. While China controls the rocks, value still resides in the chips, magnets, and machines downstream. To close this gap, China—and its competitors—must rethink how to align geology with innovation. This is not just a battle for resources; it’s a contest for value, standards, and sovereignty. 

Citation:

Huang, X., & Xie, J. (2025). From resources to value: China’s shifting position in the global value chain of rare earth. Journal of Cleaner Production, 518, 145880. https://doi.org/10.1016/j.jclepro.2025.145880 (opens in a new tab)

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