Highlights
- China controls 92% of global refined rare earth output and 87-90% of permanent magnets through its strategic two-base system in Baotou (northern light rare earths) and Ganzhou (southern heavy rare earths), creating integrated ecosystems from mining to advanced manufacturing.
- The U.S. and Western allies face critical supply chain vulnerabilities, with only one major American mine and dependence on Chinese processing, while Beijing uses export controls as geopolitical leverage over defense and high-tech industries.
- China's coordinated state-enterprise approach aims to dominate not just materials but future technologies built on them, threatening to permanently relegate Western countries to downstream consumers unless they rapidly build resilient domestic supply chains.
Rare earth elements (REEs) are the linchpin of modern technology – crucial for electric vehicle motors, wind turbines, advanced military systems, and electronics. China has spent decades building an unrivaled grip over this strategic resource. Today it controls roughly 92% of global refined rare earth output and produces an estimated 87–90% of the world’s permanent magnets, largely by consolidating its industry into a few state-backed giants.
This dominance makes China the gatekeeper for critical technologies “from EVs and wind turbines to missiles and microchips”. Beijing’s strategy has been deliberate: investing heavily in processing capacity and technology, tolerating environmental costs, and capturing the entire supply chain from mining to high-end magnet manufacturing.
As a result, China now owns 99% of global heavy rare earth refining capacity, giving it near-total command over refining specialized elements like dysprosium and terbium used in lasers, stealth coatings, and other defense applications. Crucially, Chinese planners view rare earths not just as commodities but as a pathway to technological supremacy, coordinating state and industry toward that long game.
Table of Contents
The “Two Rare Earth Bases” Explained
To secure its lead, China is establishing two major rare earth industrial hubs,often referred to as the “two rare earth bases.” These are national-level zones designed to vertically integrate everything from resource extraction to R&D and manufacturing:
Northern Base (Baotou, Inner Mongolia)
Centered on the giant Bayan Obo mine (the world’s richest rare earth deposit), this base focuses on light rare earth extraction and value-added processing, including advanced materials like neodymium-iron-boron (NdFeB) magnets. Baotou is being built up not just as a mining hub but as a hub of innovation and advanced applications – for example, hosting new magnet factories and research facilities for high-performance alloys.
Southern Base (Ganzhou, Jiangxi, and beyond)
Anchored in China’s heavy rare earth heartland around Ganzhou, Jiangxi (with extensions into Guangdong), this base concentrates on heavy rare earth elements from ion-absorbed clays (like dysprosium and terbium) and their transformation into cutting-edge products. It emphasizes deep processing, magnet production, and R&D for emerging technologies, effectively creating a platform for downstream innovation.
These “rare earth bases” are no mere industrial parks
They function as integrated ecosystems that combine mining, refining, pilot R&D labs, defense-grade production lines, and high-tech manufacturing capacity in one locale. In practice, the two bases form a coordinated North–South engine for China’s rare earth strategy, each complementing the other.
The northern Baotou base secures raw materials and basic magnet output, while the southern Ganzhou base drives materials science breakthroughs and specialized applications.
This dual-base framework is backed by a synchronized state–enterprise network: China’s state-owned enterprises (SOEs), regional authorities, and research institutions all coordinate within these hubs to accelerate innovation and industrial scale-up.
Chinese officials explicitly frame the mission of the two-base strategy as ensuring China “owns the future” in rare-earth-enabled industries through downstream innovation. In short, Beijing is not just locking up supply; it’s positioning itself to lead in the next-generation technologies that these critical elements unlock.
Implications for the U.S. and Western Countries
China’s two-base rare earth strategy carries urgent implications for the United States and its allies. Fundamentally, it highlights a serious supply chain vulnerability: the West remains heavily dependent on China for refined rare earth materials and magnet components indispensable to modern defense, energy, and electronics. For example, the U.S. has only one major rare earth mine (Mountain Pass in California), which until recently had to ship its output to China for processing due to lack of domestic refining facilities.
Europe, too, has promising deposits and projects underway but faces permitting hurdles, slow timelines, and insufficient scale to dent China’s lead. Even Australia’s Lynas Corp – the most significant non-Chinese supplier – only began separating heavy rare earths outside China in the past few years. This means that for the foreseeable future, Western high-tech and defense industries rely on Chinese rare earth supply at some stage of production.
Beijinghas shown it can leverage this dependence. Since 2023, China has imposedstricter controls on rare earth exports – requiring exporters of heavy rare earth oxides to disclose their end-users and supply chain details. In practice, this allows authorities to delay or deny shipments destined for Western defense contractors as a matter of policy. As Rare Earth Exchanges analysts note, Beijing doesn’t even need an outright embargo; through selective licensing and traceability rules, it already holds “a silent throttle on the global defense tech supply chain”.
Recent moves to expand export controls (for instance, on certain magnet alloys and technologies) reinforce that China can tighten the tap on critical materials whenever strategic interests dictate. This raises the stakes for Western countries, as the risk of supply disruptions or price shocks could hamper everything from EV manufacturing goals to the readiness of F-35 fighter jets.
Of course the trade war that was launched on Liberation Day via the USA has led to more examples of China’s leverage concerning the dependence on these essential vitamins of industry.
Most importantly, China’s rare earth bases strategy signals an ambition to dominate not just the materials, but the future industries built on those materials. By integrating mining with cutting-edge manufacturing at Baotou and Ganzhou—plus ongoing research and development-- China aims to be the origin of next-generation breakthroughs – whether it’s ultra-efficient electric motors, novel aerospace alloys, or quantum computing components.
For the U.S. and its allies, understanding this strategy is critical. It means they are not simply competing against foreign companies, but against a state-orchestrated ecosystem that aligns national resources, research talent, and industrial capacity toward strategic ends. Western nations, with traditionally market-driven approaches, face a challenge in mobilizing an equivalent coordinated response.
Final Thoughts
In summary, China’s “Two Rare Earth Bases” policy is a cornerstone of its vision to “own the future” by controlling the foundation of emerging technologies. It underpins Beijing’s geopolitical leverage and could cement long-term advantages in defense and high-tech industries. U.S. and European leaders are increasingly aware that whoever controls rare earths controls key supply lines of the 21st-century economy. Rare Earth Exchanges experts warn that without sustained investment, industrial strategy, and allied coordination, Western countries may find themselves permanently relegated to downstream consumers in a China-dominated tech ecosystem.
In other words, as Rare Earth Exchanges has continuously chronicled, unless the West swiftly builds its own resilient supply chains – from mines and refineries to magnet factories – China’s rare earth two-base strategy will leave it technologically outmaneuvered for decades to come.
© 2025 Rare Earth Exchanges™ – Accelerating Transparency, Accuracy, and Insight Across the Rare Earth & Critical Minerals Supply Chain.
Spot on.. For those who wonder how China can maintain a 40-year focus on a technology strategy that integrates industry, universities, and government, I highly recommend the Dan Wang book, Breakneck: China’s Quest to Engineer the Future (2025).