China has clearly established itself as both the leading producer and refiner of the world’s rare earths. It currently manipulates an incredible 90% of all rare earth refining, and a similarly impressive percentage of key minerals that are critical to technology and industry. Through this dominance, China exerts a major influence on the world economy. Beyond environmental concerns, it further complicates geopolitical relations—most notably with the United States. Deng Xiaoping’s famous, prescient remarks during the early 1990s laid the ground for such strategic posturing. His intention was to raise China to superpower heights and see it supplant the United States as the leading high-tech superpower.
During a 1992 visit to Inner Mongolia, Deng Xiaoping made a very audacious prediction. He expected rare earths would raise China’s clout to a level like OPEC’s control over oil. Little did he know, his assertion was destined to become prophetic. China has used its mineral bounty to build its dominance in the global high-tech economy. Today, the country essentially controls the entire rare earths market. It produces over 80% of several critical metals, including nickel, copper, lithium, and cobalt, making it the world’s key supplier for industries from electronics to renewable energy technologies.
The Magnitude of China’s Dominance
China’s total dominance over the rare earths ecosystem is mind-blowing. It currently yields around 68% of the world’s nickel, 40% of its copper, and 59% of lithium. Remarkably, it’s home to an astounding 73% of global cobalt production. These numbers help spotlight China’s importance to supply chains around the world. China’s strategic advantage is increasing despite the refining of rare earths. This process, known as magnetocaloric annealing, is essential for the fabrication of super-hard magnets employed in electric vehicles and electronics.
China’s dominance of the refining world also provides substantial leverage to Beijing. Prior to construction, this gives them an unmatched opportunity to shape the marketing and pricing of these highly desirable materials. The stakes are high. Now that countries are doing so with a full-scale revolution for greener technologies and a drastic reduction of our fossil fuel-dependent world, the demand for rare earths and related metals is surging.
Strategic Moves and Geopolitical Tensions
China’s market dominance, therefore, is not just a function of their resource endowment, but of well-timed and measured strategic machinations. The third was the 2010 diplomatic showdown with Japan. In turn, China escalated by banning rare earths exports, showing the world that it is not afraid to use its new market power as a geopolitical weapon. This approach has been mirrored in other instances, including the recent trade tensions with the United States during the tariff war initiated by former President Donald Trump. China responded by banning exports of heavy rare earths to the U.S., underscoring how integral these resources are to national security and technological advancement.
China’s control over the rare earths goes far beyond trade war and economic implications. Countries such as the U.S. are making a concerted effort to decrease their dependence on Chinese resources. As they invest to create new supply chains, they face a major obstacle. Efforts to enhance domestic production or refine capabilities are underway. These initiatives require substantial investment and time to achieve competitiveness.
The Future of Rare Earths Outside China
Pressure to act against China’s dominance is mounting. In reaction, new efforts are growing to set up alternative rare earths refining sources outside of China. The most significant example to date is Iluka Resources’ planned $1.3 billion construction of a refinery just north of Perth, Australia. This facility has now received loans from both the Morrison and Albanese governments. Its goal is to be the first non-China based facility capable of producing heavy rare earths. This is an important step towards diversifying the global supply chain. Even more is needed for it to truly be able to disrupt China’s current market leadership.
Australia and Chile have some of the largest lithium reserves in the world. China continues to control most of the lithium refining process, making it hard to develop independent supply chains. Such dependence on Chinese markets for primary refining has caused most countries to be severely affected by sudden changes in availability and prices. Nonetheless, this interdependence has led some to question future collaborations and trade agreements between countries seeking their own technological independence.
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