China's top status is faltering as offshore exploration diversifies the rare earths supply chain

Data suggests a slow shift of Chinese rare earth exports around the world since 2020, with growth slowing in recent years. According to a study by Dongguan Securities, exports rose 7.34 percent to 52,306 tons last year compared to 2022.

In contrast, China had exported 48,900 tons of rare earth products in 2021, 38 percent more than the previous year, according to statistics from the China Rare Earth Society. These exports stagnated in 2022.

China's share of total rare earth exports has fallen from about 90 percent a decade ago to about 70 percent in 2022, according to the US Geological Survey.

Rare earth minerals are heavy metals found at the end of the periodic table and require intensive processing to produce usable material. They are used in computers, computer drive motors, new generation light bulbs and batteries for hybrid and electric cars.

Demand for these goods is widely expected to increase the global rare earth market by 2030.

“The globally diversified rare earth supply pattern has gradually been established,” Xiamen Tungsten, another Chinese rare earth producer, said in its annual report on Friday. Western countries, she added, are “attributing increasing importance to key minerals.”

Australia has its own reserves of rare earth minerals several large companies equipped to dig them out. Its network of trade agreements, including a nine-year-old free trade agreement with the United States, gives the country an export advantage over China, said Stuart Orr, professor and CEO at the College of Practice Professors in Melbourne.

As offshore supply increases, prices will fall, Orr said, and “China would have to sell at lower margins.”

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A less dominant role for China means more supply chain options for foreign buyers push away from the world's second-largest economy amid import tariffs and corporate blacklists – restrictive measures imposed by the US and supported by some Western allies.

“[China] “In the past, flooding markets with cheaper rare earths, making Western mines unprofitable, has been successful, but with renewed emphasis on supply chain diversification that may now be less successful,” said a Hong Kong-based regulatory lawyer involved in the minerals trade is familiar.

China imposed an embargo on rare earth exports to Japan in 2010 following the seizure of a Chinese fishing vessel.

The general trend is to avoid Chinese monopolies on anything, but that doesn't mean 100% decoupling from the Chinese rare earth market, Stephen Nagy

That embargo, no longer in effect, prompted Japanese manufacturers to extract the minerals from recycled PCs and phones, recalled Stephen Nagy, a visiting scholar at the Japan Institute of Foreign Affairs.

North American and Southeast Asian countries have so far lagged behind China due to extraction costs and environmental concerns – rare earth mining can easily poison nearby groundwater. China also has a sophisticated network of companies refining the minerals.

“The general trend is to avoid Chinese monopolies on anything, but that doesn't mean you have to decouple 100 percent from the Chinese rare earth market,” Nagy said. “China still has the know-how [and] the minerals, and it is willing to accept environmental destruction.”

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The United States may be less deterred. According to a 2021 Harvard International Review study, the country has restarted some rare earths mining operations to keep Washington separate from China in the event of a “major dispute.” However, it is also said that the USA has stricter environmental regulations compared to China.

In Malaysia, the government has indicated it might welcome Chinese technology to extract rare earths without harming the environment, said Oh Ei Sun, a senior fellow at the Singapore Institute of International Affairs.

“Let’s say Chinese rare earth mines want to relocate to avoid sanctions,” he said. “We would like to have them.”

But China is not taking the potential environmental costs lightly either.

China will not allow the rare earth sector to harm the environmentZhao Xijun

According to a study published by ScienceDirect in January, Beijing introduced its own environmental and industrial standards in 2011, which “gained global attention for their perceived restrictiveness” while raising concerns about the country's “willingness” to sell the minerals internationally.

Environmental regulations now take precedence over industry development, said Zhao Xijun, a finance professor at Renmin University in Beijing, although modern technology gives China a lasting advantage.

“China's commitment to environmental protection is important,” Zhao said. “China will not allow the rare earth sector to harm the environment.”

Meanwhile, Xiamen Tungsten predicts little change in China's rare earth sector.

“Overall, the global supply of rare earth minerals will continue to grow over the next few years due to growing demand, but the Chinese-dominated pattern of mineral supply will not change significantly,” the company said.