China's grip on the rare earth industry was not accidental. Starting in the 1990s, lax environmental regulations allowed mining to expand quickly across Inner Mongolia and southern provinces, and state-controlled companies bought overseas assets to move up the value chain. US factory lines were shut down and relocated to China by 2004, entrenching its dominance in rare earth magnets, which are central to everything from cell phones to fighter aircraft. Deng Xiaoping, the late leader, summarised the strategy nicely: "The Middle East has oil, China has rare earths," the Financial Times reported.
Why Western alternatives fail
China makes 70% of rare earth mining, 90% of separation and processing, and 93% of magnet production now. The monopoly has enabled Beijing to keep prices low globally, discouraging competitors from the market. Western producers, analysts say, have a simple issue: it is "impossible" to match Chinese prices in the absence of subsidies. Even when demand rose with electric vehicles and alternative energy, Beijing ramped up quotas to reduce prices, suppressing competitors' margins.
How Beijing uses rare earths strategically
China's monopoly has enabled it to leverage control of trade disputes. In 2010, it effectively limited exports to Japan, prompting Tokyo to try and hoard and recycle the rare earths of used electronics. Recent European leaders have accused Beijing of "blackmailing" through a close control of exports, halting foreign stockpiling while maintaining enough supply on the shelf to prevent big shortages. The trend, experts warn, shows China using the leverage of rare earths as both an economic and geopolitical tool.
Western attempts to fight back
The US, Europe, and Japan are competing to establish alternative supply chains. Washington just pledged to buy neodymium-praseodymium at nearly double the market price to support domestic miner MP Materials, and committed to buying all magnets from a proposed US plant. The G7 is also exploring standards-setting as a way to stem reliance on China's rock-bottom exports. But sceptics doubt demand will shift significantly beyond defence, given most companies prioritize cost over everything.
Lessons for other supply chains
China's rare earths playbook teaches the difficulty of displacing entrenched hegemony. By keeping prices low rather than raising them, Beijing has dissuaded competition while investing in scale and technology. What this has established is a virtual monopoly of dependence on crucial industries worldwide, one that will take decades to unwind. Pundits caution that analogous forces operate in other strategic commodities, in which cost and scale are as important as access.
What's next
While the US and its allies heavily invest in critical minerals ventures, triumph will not solely rely on drilling but also on establishing entire processing and magnet-manufacturing sectors. Without that entire chain, Western endeavours might struggle to break Beijing's grip. Industry insiders and even competitors temporarily agree with Chinese executives: the world would be dependent on China's rare earth supply in the near future.
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