China takes a multi-level approach to rare earth elements

Rare earth supply chains have become a major concern in global politics. As China has increasingly imposed export controls on rare earth elements, the United States and its allies have intensified efforts to diversify supply chains and reduce dependence on Chinese markets. However, amid this intense focus on restrictions, little attention has been paid to how China will respond to US-led efforts.

In addition to cutting supplies, China is pursuing a multi-layered approach that combines enhanced industrial policy, incentive-based cooperation, and careful balancing while establishing export controls. While China’s strength in rare earth minerals is undoubtedly prominent, focusing on them alone risks underestimating China’s ability to adapt to strengthen its industrial base and manage US-led diversification pressures.

Rare earth minerals are not inherently rare, as many countries have large reserves of them. China’s advantage in rare earth metals rested not only on its wealth of resources, but on its ability to integrate large-scale extraction, processing and manufacturing. The rapid development of China’s rare earth metals sector can be largely attributed to state-level strategic priority and state-led industrial policy, which has aligned technological upgrading, capital investment, and regulatory arrangements across the supply chain.

Beijing has always stressed the importance of technological development, and the necessity of moving beyond the stage of extracting raw materials, and moving towards sectors of higher value. The process of technological modernization in the rare earths sector has been boosted by China’s capital allocation model, which provides generous support to this sector. Although this development model encouraged increased supply and led to lower prices, it also contributed to creating barriers to entry for foreign companies, which limited their ability to compete in global markets.

In addition, regulatory conditions in the early stages of Chinese economic development facilitated rapid expansion, allowing China to achieve savings in production that others struggled to reach.

As the strategic value of rare earths increases, recent policy efforts have focused on promoting China’s transition from a quantitative rare earth producer to a quality producer.

This shift has included increasing government funding, tightening regulatory standards, encouraging mergers between major producers, and increasing focus on upstream and downstream improvements associated with electric vehicles, renewable energy, and advanced manufacturing. These measures seek to consolidate China’s advantage in the field of rare earth minerals not only in production volume, but also in industrial capacity, technological superiority and methodological coordination.

Current policy debates have largely focused on the dimensions of China’s strength in rare earths, but economic interconnectedness can be used as both a “stick” and a “reward.” Long before rare earths became the focus of great power competition, China had been involved in vital metals and metals projects abroad, through its overseas presence strategy and the Belt and Road Initiative.

As US-led secession efforts accelerate, the influence of rare earth elements could also be used as an incentive. Beijing has increased its exploration of ways to leverage its ability to process these minerals and its technical expertise to enhance economic relations with other countries. An example of this is the discussions between China and Malaysia in October 2025 about a potential partnership to build a refinery, which may include technical and technological assistance from China. The facility is expected to process critical materials essential for electric vehicle motors, wind turbines, defense technologies and advanced electronics. About “The Diplomat”

• China has moved from a producer of rare metals in terms of quantity to a producer in terms of quality.