Unpacking China’s Rare Earth Empire

Special Edition #1: A conversation with Hu Xinyue, a top China analyst on industrial policy.

Dear Readers of Eurasia Dispatch,

Welcome to a special edition of the newsletter! There has been a lot of talk recently about China’s export controls on rare earth elements and how they upended industrial production across the globe. The issue deserves a deep-dive, so I reached out to one of the top minds of the topic—Hu Xinyue, a senior analyst of the China Programme of the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. Our conversation covers:

• Rare earth elements and their applications

• China’s ascent to rare earth supremacy

• Outlook on emerging international players’ rare earth trajectories

Without further ado, let’s get down to business!

RARE EARTH ELEMENTS AND THEIR APPLICATIONS

Eurasia Dispatch (ED): Xinyue, it is a pleasure to pick your brain on this crucial issue. Before we get into the nitty-gritty, tell us a bit about yourself. What does your research focus on, and how did you get interested in China’s policies regarding rare earth elements?

Hu Xinyue (HXY): My research focuses on U.S.-China competition, with particular attention to China’s economic diplomacy and the technology war.

The technology war is increasingly evolving into a contest over control of the upstream segments of supply chains. Rare earth elements—over which China holds a dominant position—are essential upstream inputs for key technologies such as electric vehicles, radar, and sonar systems. These minerals have become more than just industrial inputs; they are employed both as carrots to reward China’s partners and as sticks to retaliate against its geostrategic rivals. This form of weaponisation is relatively effective, as alternative sources remain limited and difficult for other countries to develop.

ED: Fascinating. Let’s start with the basics. What are rare earth elements and why are they important?

HXY: Rare earths are a group of 17 elements including 15 silvery-white metals called lanthanides, or lanthanoids, plus scandium and yttrium.

They are used in a wide range of products including consumer electronics, electric vehicles (EVs), aircraft engines, medical equipment, oil refining, and military applications such as missiles and radar systems.

China accounts for approximately 60 per cent of global rare earth raw material production, processes about 85 per cent of the world’s output, and manufactures nearly 90 percent of the world’s rare earth magnets.

CHINA’S ASCENT TO RARE EARTH SUPREMACY

ED: Got it. Please give us some background of rare earth elements in China’s policy context. When did China recognize the importance of these elements, and what was Beijing’s rationale for gaining a key position in the related supply chain?

HXY: China began to accelerate its development of rare earth elements in the mid-1970s, at a time when environmental regulations led to the shutdown of several U.S. mines. Deng Xiaoping—China’s top leader who took over the helm in the second half of the 1970s—articulated a strategic vision in 1992 for China to become a global leader in the rare earth industry, famously stating, 'The Middle East has oil; China has rare earths'.

While explicit evidence of Chinese officials’ strategic calculations regarding the development of the rare earth industry remains limited, broader policy trends—and my assessment—suggest that Beijing’s rationale for securing a dominant position in this sector is driven by a combination of economic, geostrategic, and technological considerations.

From the economic perspective, China has invested heavily in developing the entire rare earth value chain, from mining to manufacturing rare earth-based products like magnets. This allows China to capture higher value compared to simply exporting raw materials. By controlling a large share of rare earth production and processing, China can influence global prices and ensure stable supplies for its own industries.

Geostrategically, Beijing reduces its geopolitical vulnerability to external disruptions or sanctions by consolidating control over rare earth elements, decreasing reliance on foreign sources, and ensuring a stable supply of them for its domestic industries.

In the field of technology, Beijing strives to achieve technological self-sufficiency. Rare earth elements are critical to this goal, as they are essential for the development of advanced technologies. China’s Twelfth Five-Year Plan, released in May 2011, outlined key objectives including enhancing energy efficiency, reducing carbon emissions, and positioning the country as a global leader in renewable energy production. As part of this strategy, the plan prioritized the development of downstream rare earth industries—such as magnets, phosphors, hydrogen storage materials, and abrasive polishing materials—to support advanced manufacturing.

ED: Could you give us a broad historical overview on how China achieved a key position in the rare earth element supply chain?

HXY: China’s dominance in the rare earth industry is not coincidental, but the result of decades of targeted state efforts.

First, China has focused on developing related technologies, beginning with the acquisition of several rare earth processing techniques from France in the 1980s. Between 1950 and 2019, China filed nearly 26,000 rare earth-related patents—significantly more than Japan’s 13,920 and the United States’ 9,810.

Second, China has developed strong state control over its rare earth industry. For example, Magnequench—a rare earth-focused company and former subsidiary of General Motors—was acquired by a Chinese state-owned enterprise in the late 1990s, with Deng Xiaoping’s son-in-law appointed as the new head of the company. Following the Twelfth Five-Year Plan in 2011, the Chinese government consolidated the fragmented rare earth sector—reducing more than 100 firms into six major state-owned enterprises—and directly funded national research laboratories dedicated to rare earth smelting and separation. By the first half of 2016, these state-owned firms accounted for 99.9 percent of China’s rare earth production quota. Furthermore, in 2022, three large mining conglomerates and two research institutes were merged to form the China Rare Earth Group, enabling Beijing to control an estimated 30–40 percent of global supply.

Third, China capitalised on the closure of U.S. rare earth mines by flooding the global market with cheaper rare earth products. In the 1980s, the U.S. led rare earth production, primarily through the Mountain Pass mine in California. However, strict environmental regulations increased costs, leading to mine closures by the early 2000s. China capitalized on this opportunity by leveraging its extensive state subsidies, reducing its production costs and eventually surpassed the U.S.

ED: Everything has a price. What was the price China paid for its spectacular success?

HXY: Rare earth mining comes with significant environmental externality. For every ton of rare earth produced, the mining process yields 13 kilograms (~28.66 pounds) of dust, 9,600-12,000 cubic meters of waste gas, 75 cubic meters of wastewater, and one ton of radioactive residue. While China is investing in cleaner technologies—such as those aimed at reducing mining time, energy consumption, and waste, as well as cutting ammonia emissions by up to 95%—widespread adoption across the rare earth industry will require time.

OUTLOOK ON EMERGING PLAYERS’ RARE EARTH TRAJECTORIES

ED: Now, other international actors like the U.S. and the EU are looking to strengthen their rare earth element supply chains. How realistic are these ambitions? What timeline are they looking at, if they want to meaningfully reduce dependence on China?

HXY: International players have been achieving technological breakthroughs in the rare earth sector. For instance, in May 2025, Australia’s Lynas Rare Earths became the first producer of heavy rare earths outside China, following the successful production of dysprosium at its plant in Malaysia. Additionally, in June 2025, the U.S. startup Phoenix Tailings was reported to be working on addressing a key bottleneck in reducing dependence on China—converting separated rare earths into high-purity metal ingots for magnet manufacturing. The technology is not yet economically viable.

Not all efforts have been fruitful. Despite the EU’s efforts—such as investing in urban mining and e-waste recovery—less than 1 per cent of rare earth elements in electronic waste are currently recycled worldwide. This highlights the stark gap between the ambitions of international actors and the present technological and economic limitations.

Other challenges that international players face are the price barrier driven by China’s state subsidies and the associated environmental externalities. China’s low-priced products may deter investments in other countries’ rare earth industries. Companies are unlikely to pay a premium for European, American or Australian rare earth products and would continue sourcing from China. At the same time, environmental pressures are likely to hinder progress in the West. For instance, opening a rare earth mine in the U.S. can take up to 29 years due to strict environmental regulations.

ED: How can Washington and Brussels to pursue their rare earth supply chain resilience while maintaining meaningful cooperation with China?

HXY: The ambitions of the United States and the European Union in securing rare earth element supply chains do not inherently imply a zero-sum game. The interdependent nature of global supply chains suggests that absolute decoupling is neither feasible nor necessarily desirable.

From past experience, it can be observed that China has used rare earth export controls primarily as a defensive, retaliatory measure rather than an offensive tool. Notably, China has also offered opportunities for rare earth technology cooperation—although currently, such cooperation is mainly with Malaysia.

Furthermore, China has demonstrated restraint and flexibility in limiting rare earth element exports. In June 2025, U.S. President Donald Trump stated that Chinese President Xi Jinping had agreed to allow the continued flow of rare earth elements, suggesting that China remains open to easing supply tensions and resuming cooperation under certain conditions.

ED: Let’s close with a forward-looking question. Considering the current dynamics, who are the emerging key players in the rare earth element space and why?

HXY: This is an interesting question! Countries such as Brazil, India, Russia, and Vietnam hold considerable amounts of rare earth reserves, but they lack sufficient state support to capitalize on this critical industry. The U.S., EU, and Australia are investing in rare earth technologies, but their progress largely depends on the effectiveness of state subsidies in competing with China's cost advantage, as well as how companies manage and navigate environmental pressures.

ED: Thank you, Xinyue, for shedding more light on this crucial topic. I wish you all the best with your research!

BEFORE YOU GO

If you are interested in Xinyue’s work, check out her profile, and her articles here, here and here.

Trade tensions, technological and energy cooperation shapes the Eurasian discourse these weeks. Developments on these fronts will reverberate across global politics, trade, and defence. If you are interested in how these processes evolve, stay tuned for further updates in the next issue of Eurasia Dispatch! Thank you for reading, and we’d love to hear your thoughts—feel free to share your insights and feedback.

Until next time,

Eurasia Dispatch

P.S. As always, I am grateful to my editor.

Disclaimer: The views expressed by the interviewer and interviewee are their own and do not represent the views of their affiliated institutions.