POLICY / MACRO / GOVERNMENT

Rare earth realities:
The hidden metals behind China’s economic power

Modern technology hums along smoothly, but beneath the surface, it leans on a handful of obscure metals and an even more obscure truth: much of that power passes through China. Rare earths may not be rare in the ground, but control over them has become something far more precious. It has become leverage.

by Philip Tudor
Oct. 28, 2025

When you swipe your smartphone screen or glide silently along in an electric car, you’re riding the surface of a much deeper story. Underneath the gleam of modern life lies a collection of metals with names that sound Greek gods. Neodymium, dysprosium and europium. You probably haven’t heard of them. But they know all about you. These rare earth elements, while obscure, are everywhere. From whispering inside your headphones or spinning inside wind turbines to steering missiles mid-air. And over the last few decades, one country, China, has steadily transformed them from mere geological curiosities into tools of global leverage. To borrow a line once attributed to the former leader of China Deng Xiaoping: “The Middle East has oil, China has rare earths.” As metaphors go, it’s more than just catchy, it’s strategic prophecy.

What rare earths are and why they matter
Despite the name, rare earths are not particularly rare. They’re sprinkled generously throughout the Earth’s crust. They are as a matter of fact more common, than silver or gold. But finding them in a usable form and separating them from one another, is a bit like trying to unscramble a dozen eggs after you’ve already made the omelette. There are 17 of these elements in total, all chemically similar and maddeningly co-located. To refine them, you don’t just dig and wash. You have to undertake a painstaking, multi-stage chemical marathon. It can take 50 steps or more to isolate the desired element and each step adds cost, complexity and environmental headache. For this reason, rare earths are sometimes called the “industrial vitamins” of modern technology: needed only in small doses, but absolutely essential.

A smartphone may only use a fraction of a gram of terbium to brighten your screen or a few grams of neodymium to drive a speaker magnet but without those little amounts, the tech wouldn’t work at all. In electric vehicles, rare earths power the high-performance magnets inside the motor. In jet engines, they help materials withstand searing heat. In wind turbines, they deliver strength without weight. They are, in a nutshell, the quiet enablers of the clean energy transition and modern defense. But of course, every material has a supply chain and that’s where things get interesting.

The map always leads to China
If you follow the rare earths trail far enough upstream, the path doesn’t end in Silicon Valley or Stuttgart. It ends in Baotou or Ganzhou which are industrial hubs deep in China where minerals are transformed from dusty ore into precision-engineered magic. China today dominates the rare earth supply chain not because it has all the rocks (although it does have a generous share) but because it built the infrastructure and took the environmental hit that others didn’t want. While many countries explored rare earth mining, China invested in refining. This is the dirty, complex and unglamorous business of separating elements and preparing them for high-tech use.

It was a classic case of strategic patience. Western firms, wary of low profit margins and high regulatory hurdles, tiptoed around rare earth refining. In the meanwhile China ploughed ahead. It subsidised companies, consolidated operations and developed a vertically integrated system. The result speaks for itself. Today, China controls about 70% of rare earth mining and a staggering 90% of refining capacity globally. In fact, China now imports rare earth ores from other countries, including Myanmar and even the United States, just to keep its refineries humming. The value isn’t in the rock. It’s in the refinery.

This dominance is no accident of nature. It’s policy by design. It gives China not just an economic edge, but a strategic chokehold. A rare earth mine in California or Australia may dig up promising ores but they often still need to send them to China for processing. The real power isn’t in owning the mine, it’s in standing at the only exit and Beijing is doing just that.

Regulators in coveralls
China’s grip on rare earths has been engineered from the top down. Since 2006, Beijing has acted like a central banker for minerals, setting annual quotas for mining and refining. On paper, the aim is environmental stewardship by limiting pollution and avoiding over-extraction. Nevertheless in practice, these quotas act like a thermostat. Turn it up, and prices cool down. Turn it down, and the market heats up. This kind of control allows China to outmaneuver rivals before they even take the field. A surge in output can flood global markets and send prices tumbling. This leads to discourage among new entrants. A modest cutback, by contrast, can tighten supply just enough to remind the world who’s in charge. In 2024, for instance, China produced about 270,000 tonnes of rare earths, nearly double the output from five years prior. But then came the twist. Instead of continuing to expand, Beijing nudged the growth rate down to just 6%, avoiding oversupply and preserving its pricing power. Think of it less like a factory boom and more like a conductor cueing the orchestra. Steady, deliberate and utterly in control.

From chaos to cartel
But output caps are only half the story. The other half is consolidation. Beijing’s quiet reshuffling of the deck to ensure that only trusted players are holding the cards. Over the past few years, China has folded its major rare earth producers into just two state-backed giants. “China Rare Earth Group” in the south, and “China Northern Rare Earth Group” in Inner Mongolia. It’s part industrial logic, part geopolitical chess move. New regulations, rolled out in late 2024, declared rare earths to be state-owned resources. Companies must now track each batch from mine to magnet and unauthorized mining or smuggling faces steep penalties. It’s a system built not just for control, but for traceability where every gram can be accounted for, like money in a central bank vault. The result is an industry that behaves less like a free market and more like a national utility, tightly managed from pit to port.

The mineral weapon
Yet the most dramatic pages of China’s playbook are the ones it reserves for times of trouble. Over the past 15 years, Beijing has shown a willingness to deploy rare earths like diplomatic gunpowder. Never as a first strike, but always ready in the holster. In 2010, during a spat with Japan, China abruptly halted rare earth exports. Prices soared tenfold. In 2025, amid escalating U.S. tariffs, it introduced export licensing requirements on key rare earth magnets. This was deliberately vague and suddenly impactful. Within weeks, several global carmakers had to slow production. A quiet mineral had become a loud message. China insists these are economic decisions but the timing is rarely lost on observers. As one Chinese official once put it: “Those who bear the burden of supply have the right to wield it.” In other words, if you control the tap, you don’t need to shout, you just turn the handle.

Not just raw materials, raw strategy
China’s ambition, however, isn’t to be a miner, it’s to be a manufacturer. Instead of shipping out raw ores, it’s focused on turning them into finished products. Ranging from magnets, motors, lasers and beyond. In 2024, China exported over 58,000 tonnes of rare earth magnets (appr. 9,700 adult African elephants), worth nearly $2.9 billion. This is more than triple the volume of raw rare earths it sold abroad. Why sell the flour when you can sell the cake? The government sweetens the deal with subsidies, cheap raw material access and generous support for downstream industries. This has powered the rise of Chinese firms in everything from electric vehicle motors to high-end headphones. One major magnet manufacturer operated on razor-thin 5.6% profit margins, yet continued to dominate because in China’sstrategic calculus, margins are a means, not an end. The result is a value chain that does more than add value. It adds resilience, bargaining power and influence. Rare earths are not merely mined, they are maneuvered.

Rare earths, paradoxically, don’t drive trade by themselves. What they do is make it possible for China to export high-value products. The value isn’t in the metal. It’s in the things the metal enables. In 2024, China’s exports of basic rare earth compounds brought in just $170 million but its exports of finished rare-earth products ran into the tens of billions. Each component becomes a multiplier: one rare earth magnet might end up in a motor that’s sold in a $30,000 EV or a $1,200 smartphone. And that’s how a humble element becomes an economic engine.

A hedge against uncertainty
Then there’s the matter of pricing power. Because China controls supply, it has a unique ability to insulate itself from rare earth price volatility. If prices rise globally, Chinese manufacturers can keep their costs stable. If prices fall, China can afford to ride the storm, even using low prices to squeeze out emerging competitors. This creates a subtle but powerful macroeconomic tool. It doesn’t just support China’s manufacturers, it can help dampen inflationary pressures, influence trade balances and even bolster the yuan. There’s already talk of pricing more rare earths in Renminbi on domestic exchanges. That may sound minor but in a world where commodities often set the rules of trade, it’s one more way to shift the balance. Most importantly, rare earths offer geopolitical leverage without the noise. They don’t appear on many balance sheets. But when tensions rise, their absence is felt immediately. Whether it’s Japan in 2010 or carmakers in 2025, the pattern is the same: a flick of China’s wrist, and the ripple spreads globally. This quiet leverage also reinforces Beijing’s hand in trade talks, tariff disputes, and even broader economic diplomacy. In a world where interdependence is both a risk and a resource, rare earths are China’s built-in bargaining chip. One that never has to be played outright to shape the game.

The global ripple effects – when one country sneezes
In an era of globalised supply chains, a hiccup in one part of the world can cause a seizure somewhere else. When it comes to rare earths, that part is almost always China. In early 2025, Beijing tightened its grip. Exports of rare earth magnets plummeted 75% in just two months. The shock ricocheted down assembly lines from Stuttgart to Silicon Valley. Production slowed. Orders backed up. The world was reminded, not for the first time, that when China flexes its export muscles, critical industries can be brought to their knees. But this isn’t just about temporary disruptions. It’s about volatility baked into the system. Rare earth prices tend to behave like toddlers after too much sugar, surging in one moment, collapsing the next. In 2022, prices soared to decade highs amid booming electric vehicle demand. Then in 2023, with pandemic aftershocks still rippling and China pumping out fresh supply, they crashed. Neodymium oxide (NdPr), one of the sector’s stars, became a case study in whiplash economics. At one point, prices halved, leaving Western producers gasping for viability.

This sort of boom-and-bust cycle is not just annoying for buyers. It’s strategically disabling. After all, who wants to build a billion-dollar rare earth refinery if a sudden Chinese quota increase could halve your revenues? Many non-Chinese producers require prices around $140–$150/kg just to break even. Recently, they’ve been selling for half that.
Now the governments are stepping in. The U.S. Department of Defense guarantees a floor price of $110/kg for NdPr oxide in order to protect the domestic supplier “MP Materials”. It’s effectively industrial insurance. Japan burned by a supply freeze in 2010, slashed its dependence on China from 90% to around 60% by investing in new mines, recycling infrastructure and long-term supply deals. Europe, not to be left behind, passed the EU Critical Raw Materials Act, setting ambitious targets. Extract 10%, recycle 15–20% and cap dependence on any one country at 65% by 2030. Behind the acronyms and policy briefs lies a simple message: don’t get caught off guard again. New projects are sprouting, from Sweden to South Africa, from Canada to Australia. Alliances like the Minerals Security Partnership, spearheaded by the U.S. and its allies, aim to build an alternative network for critical minerals. Nevertheless, building a rare earth supply chain is not like snapping together Lego blocks. It’s like raising a cathedral. Capital-intensive, environmentally fraught and painfully slow. Which is why, even by 2040, analysts expect China to still account for around 73% of rare earth refining. The world may be diversifying but not fast enough.

The transition dilemma: green tech’s dirty secret
Now here’s the catch, rare earths aren’t just part of our digital lives. They’re also cornerstones of the climate transition. Electric vehicles, wind turbines, solar inverters, all of them rely on these obscure elements. A single EV might contain one to two kilograms of neodymium and praseodymium in its motor magnets. A modern wind turbine can require hundreds of kilograms of rare earth materials in its generator. The greener we go, the more we depend on them. Forecasts are striking. By 2040, demand for neodymium could double. Demand for dysprosium, a heavy rare earth used in high-temperature magnets, could even increase sevenfold. These aren’t just technical trends, they’re geopolitical curveballs. It creates a peculiar dilemma. The world is trying to break its addiction to fossil fuels, only to risk replacing it with a dependency on Chinese rare earths. In striving to solve one vulnerability, we may be entrenching another. The image practically paints itself. Global leaders tout ambitious climate goals while factories scramble for Chinese-supplied magnets. In the wrong geopolitical climate, a future standoff could see EV production stall, wind farms delayed, and climate progress paused. Not by a lack of ideas or funding but by a missing shipment from Ganzhou.

Rebalancing the elements
Solving this dilemma means walking a tightrope in three directions at once. First, diversification must sprint ahead of demand. This includes opening new mines, funding recycling programs and building refining capacity. Especially in regions with untapped reserves, like parts of Africa. Second, technological innovation must catch up. Motors that avoid rare earth magnets exist, they just need to be cheaper and more efficient. New materials, improved magnet designs and efficient recycling could all help ease the pressure. Third and perhaps most crucially, coordination matters. The rare earth story is prompting a wider rethink of globalization. Moving from just-in-time to just-in-case. Stockpiles, alliances, and public-private partnerships could offer resilience in ways traditional supply chains never aimed to. Because in the end, rare earths are not merely industrial inputs. They are geopolitical fault lines.

Conclusion: quiet metals, deep shadows
In a world where power is often measured in loud policies and even louder headlines, rare earths offer a subtler form of influence. They don’t command attention, they accumulate it. A few grams at a time, tucked inside turbines, tucked inside treaties. China understood this before most. It didn’t race ahead, it settled in. It built, refined, and waited. Now, from the edge of a supply chain hardly anyone thought to guard, it casts a long shadow across the technologies the world depends on. Other nations are beginning to respond. Mines are reopening and alliances are forming. Engineers are rethinking the materials that drive our machines but the gap is wide and the rules of the game were written years ago. Rare earths don’t move markets with headlines. They don’t spark wars or win elections. Nevertheless, in the quiet margins of global trade, they shape outcomes all the same. Sometimes, it’s not the loudest forces that shift the world.
Sometimes, it’s the ones you never hear coming.