Tightening Grip on Global Tech Supply Chains, Retail Investors Must Understand the Entire Rare Earth Element Value Chain

Highlights

• China dominates the rare earth value chain by controlling 90% of refining and 99.9% of heavy rare earth separation through strategic industrial hubs in Bayan Obo and Ganzhou.
• China has filed more rare earth patents annually than the rest of the world combined, establishing intellectual property control over critical technologies in green energy, defense, and electronics.
• The country’s comprehensive rare earth strategy aims to monopolize innovation from mining to high-value products, positioning itself as the global leader in rare earth technological development.

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China is rapidly moving beyond its well-known dominance in rare earth mining to assert control over every link of the rare earth value chain. Through state-backed industrial policies, strategic corporate alliances, and a tidal wave of patent filings, China’s two main rare earth hubs – Baiyunebo (Bayan Obo) in Inner Mongolia (opens in a new tab) and Ganzhou (opens in a new tab) in Jiangxi – are being positioned to monopolize rare earth innovation from magnets and batteries to defense systems, green energy, and even medicine. This structural drive, aimed at technological hegemony in critical materials, carries urgent implications for global supply chains and investors assessing geopolitical and sectoral risks.

Part of a Broader Industrial Policy

China isn’t just dominating rare earth mining—it’s locking down the entire value chain. While producing approximately 60% of the world’s rare earths, China refines nearly 90% and separates 99.9% of the world’s heavy rare earths, such as dysprosium and terbium, which are crucial for high-performance magnets in electric vehicles (EVs), wind turbines, and defense systems. At the heart of this strategy are two government-backed hubs: Baotou in Inner Mongolia, for light rare earths, and Ganzhou in Jiangxi, for heavies. These “Two Rare Earth Bases” form a north-south alliance powering a state-directed push to monopolize rare earth innovation, manufacturing, and global market share.

Backed by industrial policy, China has integrated its mining giants with elite R&D centers—such as state-owned Baogang Group (opens in a new tab) and the Chinese Academy of Sciences’ Ganjiang Innovation Institute (opens in a new tab)—to accelerate the development of next-generation materials, green technology, and defense applications.  Follow Rare Earth Exchanges (REEx) on this important, little-understood topic.

China now files more rare earth patents annually than the rest of the world combined, thereby entrenching its control not just over supply, but also over the intellectual property behind the magnets, batteries, and components that power modern economies. From clean energy to military systems to medical isotopes, Beijing’s rare earth play is about far more than dirt—it’s about total strategic leverage. Investors, take note.

China’s Dual Rare Earth Innovation Hubs–Bayan Obo and Ganzhou

Retail investors need to understand that China’s rare earth dominance is no accident—it’s a national strategy built around two powerhouse regions. In the north, the Bayan Obo mine in Inner Mongolia is the world’s largest rare earth deposit, supplying roughly half of global demand and anchoring China’s “Northern Base.” This site serves the Baotou Rare Earth High-Tech Zone, where dozens of state-aligned firms transform light rare earths, such as neodymium and praseodymium, into magnets and alloys for electric vehicles, wind turbines, and defense systems. It’s not just mining—it’s integrated industrial control.

In the south, Ganzhou in Jiangxi Province holds China’s supply of heavy rare earths, such as dysprosium and terbium, which are crucial for high-heat magnets, laser systems, and even nuclear medicine.

China has perfected the complex refining processes needed to extract these elements from ion-adsorption clays, making Ganzhou the global capital for high-purity rare earth separation. Beijing refers to this as the “Two Rare Earth Bases” strategy—Bayan Obo for mining capabilities, and Ganzhou for refining, research, and development.

Together, they form an innovation machine, now coordinated by the China Rare Earth Group (opens in a new tab), which was established in 2021 to consolidate production, research, and technology development under a single state-directed umbrella. The message is clear: China doesn’t just want to mine rare earths—it wants to control the entire value chain. Investors should pay close attention.

From Mine to Magnet Means Industrial Policy & Value-Added Ambitions

China isn’t content with just digging rare earths out of the ground—it wants to own the high-value products and technologies built from them. Under its Made in China 2025 strategy (opens in a new tab) and the current 14th Five-Year Plan (opens in a new tab), Beijing has prioritized rare earths as a foundation for upgrading its industrial base. Massive state investments and tight vertical integration are pushing Chinese companies up the value chain—from raw materials to magnets, motors, batteries, and other precision-engineered components that once came from overseas firms.

As already cited, China already controls nearly 90% of global rare earth refining, including almost all heavy rare earth separation, an essential midstream bottleneck. This monopoly gives Chinese firms the power to dictate global supply terms and withhold processing know-how. In 2023, China escalated this strategy by banning the export of rare earth refining and magnet manufacturing technologies, thereby locking in its advantage and forcing foreign industries to remain dependent or spend heavily to catch up.

The results are visible across the board. Chinese companies now produce the vast majority of the world’s rare earth permanent magnets—critical for electric vehicles, wind turbines, and advanced defense systems. Firms like JL MAG (opens in a new tab) in Ganzhou lead the way in supplying global auto and energy markets, while others are developing next-generation battery alloys and hydrogen storage materials. Even electronics and medical devices rely on rare earths processed in China. From mine to finished product, China is positioning itself as the indispensable engine of rare earth innovation, and investors should take notice.

Patent Arsenal and Innovation Monopoly

Underpinning China’s bid for rare earth supremacy is a concerted drive to own the intellectual property (IP) in rare earth applications. Decades of government-funded research and a patent-friendly industrial policy have made China the world’s top source of rare earth technical knowledge. Chinese engineers and scientists have filed over 25,000 rare earth-related patents since 1950 – far more than any other country. The pace of filings has dramatically accelerated: since 2011, China has filed double the number of rare earth patents as the rest of the world combined, covering everything from new alloy compositions and magnet designs to novel extraction methods and recycling processes.

This patent dominance is not merely for prestige – it gives Chinese companies, and by extension, the state a legal stranglehold on downstream innovation. By 2019, Chinese entities held a significant patent lead over the United States, with approximately 26,000 rare earth patents compared to about 10,000 for the U.S. In practical terms, China has the rights to many cutting-edge uses of rare earths, meaning non-Chinese companies may need licenses (or face lawsuits) to use specific magnet formulations, battery chemistries, or manufacturing techniques. Chinese firms have not hesitated to leverage this; they have formed alliances to challenge foreign patents in the past (notably breaking a Japanese hold on NdFeB magnet patents) and are now fortifying their patent walls. As one recent study warned, this “patent superiority” grants China significant control over downstream manufacturing and standards-setting in industries that rely on rare earths. It acts as both sword and shield: a tool to capture market share in high-tech sectors and a defensive moat against late-coming competitors.

Combined with the physical control of materials, this trove of IP contributes to a self-reinforcing structural advantage. China can supply raw materials at low cost, and it owns many of the processes to turn those materials into final products. This synergy – natural resources plus intellectual resources – makes China’s position exceedingly difficult to challenge in the short term. Competing nations not only have to find alternative sources of rare earths; they also have to invent workarounds for Chinese-held technologies or pay royalties, all of which take years and substantial capital.

Implications for Investors? Navigating a Geopolitical Supply Squeeze

For retail investors, China’s rare earth innovation blitz is a wake-up call that extends far beyond the mining sector. Rare earth elements may be obscure on their own, but they are embedded in the DNA of modern industries – from the green energy transition to semiconductor manufacturing and defense procurement. China’s strategic grip on this supply chain introduces systemic risks and uncertainties that savvy investors must factor into their decisions. REEx includes the following considerations in the table below:

Factors to Understand	Summary
Supply Chain Vulnerabilities	Companies dependent on rare earth materials (think electric vehicle makers, wind turbine manufacturers, smartphone producers, defense contractors, and medical device firms) face potential bottlenecks. Any Chinese move to restrict exports or raise prices, as seen with recent curbs on magnet exports and processing technologies, could jolt input costs and production timelines. Investors in these downstream sectors should monitor rare earth policy as a key geopolitical risk indicator. A single policy announcement from Beijing can send tremors through the stock prices of EV and tech companies if it threatens their material supply.
Barriers to Entry and Competition	China’s head start and patent lock-in mean that would-be competitors in the rare earth space (whether mining ventures in the West or new magnet factories in allied countries) may struggle to achieve profitability. Western projects remain underfunded and slowed by permitting,  while Chinese firms enjoy state lending, regulatory support, and a protected domestic market to achieve scale. See REEx. This imbalance suggests that China’s pricing power in rare earths – and by extension its influence over global manufacturers – will persist in the medium term. Investors weighing ventures in non-Chinese rare earth supply should account for China’s capacity to undercut prices or flood the market, a tactic it used in the past to maintain dominance.
Innovation and Market Share	If China realizes its ambition to monopolize rare earth innovation, it could capture outsized market share in the high-growth industries that rare earths enable. For instance, China is not only the top miner of rare earths but is now a leading exporter of finished rare-earth magnets and components – climbing up the value chain into markets previously led by Japan, Europe, and the U.S. Continued success in this strategy might bolster Chinese technology companies (from electric motor producers to advanced materials firms) at the expense of Western rivals. Investors might see shifts in competitive dynamics: companies aligned with China’s supply chain could gain resilience, whereas those relying on fragmented global sources could face higher costs or innovation lags.

While the tone of this reality is urgent, it is rooted in objective trends. China’s rare earth play is a long-game of technical and economic supremacy, one that is now bearing fruit in tangible ways.  The creation of unified rare earth bases in Baotou and Ganzhou, the integration of research with industry, and the accumulation of patents all indicate a deliberate effort to secure structural advantages that few countries can match in the near term.

For retail investors, the message seems clear to us here at REEx. Pay attention to rare earths. What might seem like a niche commodities story is, in fact, a barometer of the 21st century’s industrial power balance. The quest to dominate rare earth innovation is not just about obscure metals – it’s about who will control the building blocks of future technology, and the answer to that question will reverberate through portfolios and markets worldwide.

While concerted efforts are being made to develop midstream and downstream capabilities (e.g., MP Materials’ ability to refine and produce magnets), this remains in the early stages and must be accelerated through a comprehensive industrial policy. Retail investors must be aware that investing in rare earth elements encompasses far more than investing in a list of mining companies.