Deng Xiaoping, the second most popular leader after Mao in post-1949 China and known as the “chief architect” of modern China for having launched market reform policies in December 1978, said during an inspection tour to Inner Mongolia in 1992, “The Middle East has oil, and China has rare earths.” Over a quarter century later, at the height of a US-China trade dispute in 2019, during Donald Trump’s previous term as US president, Chinese state media urged President Xi to reduce rare-earth exports to the US in response to American anti-China trade measures. Xi at the time called the elements “an important strategic resource.”
Earlier this year in April, following April 2 “Liberation Day” tariffs and additional tariffs in retaliation of fentanyl imports from China entering the US, with total US tariffs on Chinese imports at 145%, Beijing announced unprecedented export curbs on rare earth magnets to the United States. On October 9, China again announced further controls on rare earth exports—this time even more comprehensive—adding more elements and technologies. What rattled most countries in the West and the US was that, for the first time, China applied the controls to foreign-made products that contain Chinese-origin rare earth materials or were produced using Chinese rare earth technologies, requiring a license for re-export.
These measures were seen as a strategic move to leverage China’s dominant position in the global rare earth supply chain—exactly what Xi Jinping had implied in 2019 when he told the media the rare earth elements were an important “strategic source.” It is this “monopoly” confidence Xi used to compel President Trump to agree to ease tariffs on China not once but twice over the past few months. Moreover, it is precisely this confidence that enabled Xi to extract from Trump the equal status treatment for China but at the same time reject being drawn into the ‘G2’ trap for Xi laid down by the US president at the Busan summit in South Korea in late October.
China’s Rare Earths Monopoly Model
A recent Goldman Sachs report claims roughly 92% of global rare-earth refining and 98% of the magnets take place in China. That gives Beijing enormous leverage in trade disputes and makes the market highly sensitive to policy headlines. “China’s dominance is truly massive,” the report emphasized. But what is the price China paid to enjoy the unrivalled leverage in the global trade due to the magnet monopoly? Why can no other country or group of countries think of catching up with or dethroning China from the coveted position? Why, despite Western governments’ pledge to spend billions of dollars to rebuild domestic rare-earth capacity, will it not bear fruit in the near or distant future?
An influential and widely circulated Chinese columnist and social media blogger specializing in Sino-US bilateral ties has tried to answer the above and several related questions. In a recent post on the digital news and current affairs platform guancha.com, the blogger explains “high pollution” costs as the reason for China’s development of its rare earth advantage. Based on the industry sources, the blogger lists down seven main segments the rare earth industry comprises. Namely mining, mineral processing/separation, smelting/deep separation, metallization, manufacturing, and recycling and replacement/substitution. In the global rare earth industry chain, China holds an absolute advantage in the third and fourth links mentioned above.
Furthermore, China has borne 80-90% of the pollution in the global rare earth industry chain over the past 30 years. The period from 1980 to 2010 was the most polluting era for China’s rare earth industry. This period was characterized by large-scale illegal mining and black-market mining. Mountainous mining areas were riddled with holes, acid leaching solutions were directly discharged into rivers, waste residue was piled up everywhere, there were no seepage prevention ponds, no tailings ponds, no collection systems, and large amounts of radioactive tailings (containing thorium) could not be managed.
It was only as recently as in 2011 that China launched a comprehensive and forceful crackdown on rare earth pollution starting in 2011. From 2016 to 2024, China entered the “Green Rare Earth” phase, consolidating its rare earth industry into six state-owned enterprises. From 2022 to 2025, China will promote “zero-emission rare earth” for the first time, including zero-emission technology for rare earth wastewater, safe landfill and secondary utilization of rare earth solid waste, and digital tailings monitoring.
China Rare-Earths Monopoly Model Tough to Break or Replicate
Last month, the European Union nearly celebrated Europe’s own new magnet plant in Estonia—dubbed as “a silver bullet for industry, climate, and geopolitics.” The decision to set up Europe’s first rare-earth commercial factory in Narva—right on the Russian border—was taken in late 2022 and was at the time seen as an “act of defiance” against Russian aggression. The commencement of commercial production of magnets is also being viewed as a bid to counter China’s “chokehold over critical materials.” “The future of Europe’s competitiveness is here,” Estonian Prime Minister Kristen Michal said at the opening of the factory. Earlier in the month of June, European Commission President Ursula von der Leyen, in a symbolic act, took a magnet made in Narva to the G7 summit in Canada.
Barely a month into magnet production in Estonia, the media reports have started indicating it’s not going to be easy to break China’s monopoly of refining and producing the elements. A report in the Wall Street Journal claimed last week the new magnet plant in Narva, Estonia, is Europe’s push to secure a foothold in the global supply chain dominated by China. “However, the plant’s initial planned capacity of 2,000 metric tons of permanent magnets is a fraction of what analysts estimate European manufacturers need,” the WSJ wrote. Built by Canada’s Neo Performance Materials and financed in part by the European Union, the Narva plant is expected to begin commercial deliveries by early next year.
Moreover, a related problem that Europe’s first magnet plant may face is how to ensure an uninterrupted supply of critical materials, as Europe does not have active rare-earth mining. Though being termed Europe’s “silver bullet,” Neo’s plan to eventually scale up production to 5000 metric tons will fall far short of making Europe “free from dependence” on China. Citing data from Adamas Intelligence, the WSJ report claims total European demand is forecast to reach about 45,000 metric tons by 2030. It’s not surprising, therefore, that Goldman Sachs has cautioned that despite Western governments pledging billions of dollars to rebuild rare-earth capacity, the progress is going to be extremely slow.
Daan Struyven, co-head of global commodities research at Goldman Sachs, believes the West may take a decade or more to loosen China’s grip on rare earths. “It’s going to take years to build up independent supply chains in the West, as it would take about 10 years to build a mine and about five years to build a refiner,” Struyven added.
Additionally, as mentioned, the new magnet plants in Europe and in the US will also be facing tough challenges in competing with China in maintaining high environmental standards. A Chinese commentary has recently claimed Baotou Rare Earth High-tech Zone (the world’s largest light rare earth separation center) in Inner Mongolia and Ganzhou Rare Earth Group (the world’s most important heavy rare earth center) in Jiangxi are the world’s first rare earth enterprises to pass the ISO14001 environmental management system certification and are known as the “world’s most environmentally friendly rare earth enterprises.”
Citing American and Japanese manufacturers who have visited the above two rare earth centers in China multiple times, who have admitted, “China has achieved the most environmentally friendly and cheapest rare earth separation in the world,” the Chinese commentary further said. Therefore, the current zero-emission “Chinese model” of refining and producing may be the most difficult for Western countries to replicate.
