U.S. strategic predicament due to China's monopoly over rare earth elements
In the 1970s, China embarked on a mission to establish a self-sufficient and dominant rare earth supply chain, a journey that has led to the country's current dominance in this critical sector.
The foundation for this dominance was laid in 1972 when Xu Guangxian, a member of the Chinese Academy of Sciences, introduced the principle of "rare earth cascade extraction." This groundbreaking method revolutionised the separation of rare earth elements, transforming the process from a lab-based, stop-and-go operation into a continuous production line.
In 1974, the technology was successfully piloted in Baotou, China's northern rare earth hub, yielding 99.99 percent high-purity rare earth oxides for the first time. This achievement marked a significant milestone in China's rare earth development.
Fast forward to 1984, and another key figure, Wang Zhenxi, successfully developed China's first NdFeB permanent magnet, matching the performance of the Japanese equivalent. This success demonstrated China's growing prowess in the rare earth sector.
China's dominance was further solidified in the 1990s when Chinese firms negotiated patent licenses with Japanese and American companies, enabling legal export of their products. Today, China supplies 90 percent of the world's permanent magnets, which are widely used in wind power, electric vehicles, and MRI machines.
China's success can be attributed to a state-driven industrial strategy focused on rapid expansion, price competition, consolidation, and strict regulatory control. Heavy government subsidies and price undercutting flooded the market, driving Western competitors out of business. China not only dominated raw rare earth extraction but also refined around 90% of the world’s capacity and developed midstream processing and magnet manufacturing, covering nearly all rare earth supply chain steps.
Beginning in the 2010s, China consolidated over 100 firms into a few large state-owned enterprises (SOEs) and research institutes, granting Beijing control over pricing, environmental enforcement, export licenses, and national production quotas. From 2024-2025, China introduced strict multiagency controls on rare earth export licensing, effectively using rare earths as geopolitical tools.
Despite China's dominance, the country faces significant hurdles in high-end applications and developing advanced functional materials, often exporting low-cost, purified rare earth minerals and importing back expensive, value-added products. The West, however, struggles to replicate China's supply chain for several reasons, including a lack of comparable state-driven subsidies and price competition, fragmented and less integrated supply chains, environmental and regulatory costs, and limited strategic coordination.
As the world continues to rely heavily on rare earth elements for high-tech applications, understanding China's journey to dominance is crucial for strategic planning and potential countermeasures.
- China's dominance in the rare earth sector was further propelled by advancements in technology, as seen in the development of China's first NdFeB permanent magnet by Wang Zhenxi in 1984.
- The science behind rare earth cascade extraction, introduced by Xu Guangxian in 1972, revolutionized the process of separating rare earth elements, leading to a continuous production line.
- In the field of robotics and energy, China supplies nearly 90% of the world's permanent magnets, which are essential components in wind power, electric vehicles, and MRI machines.
- Despite China's dominance, the West faces challenges in replicating China's rare earth supply chain, due to factors such as a lack of comparable state-driven subsidies and price competition, and environmental and regulatory costs. However, understanding China's journey to dominance is vital for strategic planning and potential countermeasures in the science, industry, finance, and technology sectors.
