How China Made It to the Top

China’s rise to global dominance in rare earth and strategic mineral production is a story of strategic foresight, natural resource management and deliberate economic planning.

In the late 1970s and 1980s, as China was undergoing a significant transformation from an agrarian economy to an industrial power, its leaders recognized the critical importance of rare-earth elements (REEs) for future technological advancement and national security. Deng Xiaoping, the paramount leader at the time, encapsulated this strategic vision when he said, “The Middle East has oil; China has rare earths.”

China’s natural endowment played a crucial role in this strategy. The country possesses about 37% of the world’s rare-earth reserves, with the Bayan Obo mine in Inner Mongolia being the largest known deposits globally.

However, having these resources was only part of the equation; the Chinese government also invested in developing the necessary mining and refining infrastructure. REEs are notoriously difficult to extract and process due to their dispersed nature and the complex, often environmentally harmful methods required for their refinement. Despite these challenges, China’s investment in technology and infrastructure allowed it to ramp up production in the 1990s, undercutting international competitors with lower prices due to reduced labor costs and less stringent environmental regulations.

During this period, the United States and France started to see their REE companies either go out of business or be acquired by Chinese competitors with state backing.

By the early 2000s, China had established an effective monopoly on rare-earth production, controlling approximately 95% of the global supply. This dominance allowed the country to influence global prices and wield significant geopolitical leverage.

China’s control over REEs extends beyond economic advantages; it also plays a critical role in the geopolitical sphere. REEs are essential components in various advanced technologies, particularly in the defense sector. They are used in the production of high-performance magnets crucial for military hardware, including jet engines, missile guidance systems and satellites. By controlling the supply of these materials, China has gained a significant edge in global power dynamics.

However, China’s dominance has not gone unchallenged. Recognizing the risks of over-reliance on a single supplier for such critical resources, other countries, including the United States and European nations, have begun efforts to diversify supply chains.