China continues to dominate the global rare earths supply chain, leveraging its influence not through overt export bans but via a more subtle system of licensing delays, quota management, and administrative control. While partner economies have learned much since the 2010 Japan–China rare earths dispute, the balance of power remains tilted toward Beijing. Efforts by Japan and others to replicate Tokyo’s post-2010 diversification strategy — combining finance, offtake agreements, and processing expertise — have delivered partial progress, but global market volatility and long project timelines still deter wider investment.
Experts warn that without faster development of midstream processing, transparent permitting systems, and shared environmental standards, the global economy will remain vulnerable to administrative chokepoints in China’s rare earths sector.
According to the International Energy Agency (IEA), global demand for rare earth elements rose by 6–8 percent in 2024, driven by electric vehicles, wind turbines, and advanced electronics. Yet, over 70 percent of rare earth processing — and nearly 90 percent of magnet production — still takes place in China. The IEA cautions that supply concentration will remain a “core vulnerability” unless partner economies scale up investment across the full value chain, from mining to magnet production.
China’s advantage is not new, but the mechanisms through which it exerts leverage have changed. The 2010 dispute with Japan, which followed a maritime collision near the disputed Senkaku/Diaoyu Islands, serves as a historical touchstone. At the time, Japanese firms reported sudden shipment stoppages of rare earths from China, prompting Tokyo to accuse Beijing of imposing an informal embargo. Chinese officials denied any political motive, claiming instead that export quotas were simply being fulfilled — a justification later rejected by the World Trade Organization (WTO) in a 2014 ruling.
That episode crystallized global awareness of the strategic importance of rare earths. But in 2025, Beijing’s influence is exercised less through dramatic export bans and more through bureaucratic mechanisms — delayed licensing, shifting quotas, and opaque administrative procedures that slow delivery without breaching international trade norms outright.
China has spent the past decade consolidating its rare earth industry under state-owned champions such as China Northern Rare Earth Group and China Minmetals. The government has also tightened environmental standards, curbed illegal mining, and imposed new oversight on magnet exports. In April 2025, Beijing introduced special licences for selected rare earths and permanent magnets used in defence, energy, and automotive sectors.
Crucially, mid-year reports revealed that the first 2025 mining and smelting quotas were issued without public announcement, indicating a new level of administrative opacity. Analysts interpret this as part of Beijing’s broader strategy to ensure that leverage flows not only through production but also through paperwork — a quiet, continuous pressure point that keeps global users dependent on Chinese goodwill.
While this approach avoids the headline risk of an embargo, it introduces persistent uncertainty into global supply chains. Manufacturers in Japan, the U.S., and Europe have reported longer delivery times and inconsistent export documentation, suggesting that administrative discretion has become China’s main instrument of control.
Few countries have responded to China’s dominance as effectively as Japan. Following the 2010 shock, Tokyo pursued a multi-layered diversification strategy that combined concessional finance, offtake agreements, processing expertise, and distribution partnerships. Central to this was the Sojitz–JOGMEC–Lynas partnership, established in 2011 to secure stable rare earth supplies from Australia’s Lynas Corporation.
The model proved successful enough that it was expanded in 2023 to include heavy rare earths. Japan’s approach de-risked supply by tying financial capital to physical delivery — a structure that helped shorten the qualification cycles for end users in electronics and automotive industries.
However, dependence in 2025 looks different from a decade ago. China’s export licensing and quota management have evolved to target not just the raw materials but the entire value chain, including intermediate products like oxides and magnets. As a result, partner countries must now compete not only on extraction but also on processing, refining, and component manufacturing.
Market dynamics remain stacked against diversification. Rare earth mining and refining projects often require 10–15 years to become operational and demand hundreds of millions of dollars in up-front capital. Yet prices are highly volatile: a short-term drop can render an entire project unprofitable. The resulting uncertainty discourages investors from committing to long-term infrastructure.
This volatility underscores why policy, not price, must drive diversification. Simply announcing new mines is not enough. Governments need to close financing gaps, compress qualification timelines, and provide regulatory certainty that supports investors even when prices dip.
- Build Flexible Midstream Supply Chains
Partner economies must focus on developing midstream processing — where rare earth oxides are refined into metals and magnets. Governments can use procurement contracts, tax incentives, and export credit guarantees to underwrite costs for firms sourcing from multiple suppliers. Designing contracts that reward multi-source flexibility can reduce single-point dependence, while shared test lines could help smaller manufacturers pass magnet and motor certification faster. Southeast Asia and Australia, with their growing processing bases, are natural hubs for this effort. - Scale What Worked for Japan
Japan’s success lay not in mining alone but in financing the entire value chain. Structured offtake agreements that include processing know-how, quality assurance, and long-term pricing mechanisms can reduce commercial risk. Other economies can replicate this model by pairing public finance with private expertise, ensuring that investment commitments translate into qualified industrial capacity rather than speculative resource plays. - Treat Licensing Speed as a Strategic Variable
In a world where administrative discretion can delay supply, permitting speed and transparency become instruments of resilience. Partner countries should establish clear timelines for mining and environmental permits, harmonize environmental standards, and mutually recognize audit processes. This would make it harder for any single actor to manipulate delivery schedules via bureaucratic delays. - Short-Term Bargains and Strategic Buffers
In today’s fragmented trading system, governments often rely on short-term bargains to secure critical inputs. These deals can buy time — keeping factories open and production lines running — but they are poor substitutes for long-term resilience. Strategic buffers such as stockpiles, joint purchasing agreements, and price floors can help stabilize markets and protect investors during supply shocks. Such mechanisms are already under active discussion in G7 capitals and at the European Commission.
Innovation offers limited, but promising, relief. Rare earth-free magnets, developed by firms like Niron Magnetics with backing from major automakers and U.S. federal programs, are advancing from laboratory to pilot production. However, even optimistic forecasts see these alternatives capturing only a small market share by the late 2020s. For the foreseeable future, industries from defence to renewable energy will still depend heavily on qualified rare earth magnets — reinforcing the need to expand processing and magnet-making capacity outside China.
While legal instruments such as WTO dispute settlement can challenge discriminatory measures, they cannot fix the structural problem of concentration. Rather than attempting to litigate leverage out of existence, economies must build diversified capacity fast enough that no single actor can dictate delivery schedules.
That means accelerating offtake-backed investment, aligning industrial standards, and improving transparency around licensing and quotas. Governments should coordinate public funding for shared testing infrastructure and mutual recognition of environmental and safety standards — practical steps that shorten the time between resource discovery and usable industrial output.
China’s grip on rare earths remains formidable, but it is not immutable. The experience of Japan after 2010 shows that diversification is possible when governments combine finance, technology, and partnerships across the supply chain. Yet progress remains slow, and the stakes are rising as global demand accelerates.
If partner economies fail to act decisively in this decade, they risk locking in another generation of dependence on China’s bureaucratic leverage. The challenge is not merely to produce more rare earths — it is to build a resilient, transparent, and diversified system fast enough that paperwork in Beijing no longer dictates production in Detroit or Osaka.
