China digs deep to bolster global dominance
China has silently dominated the extraction and processing of rare earth minerals, which are in demand globally for phone, car, and even missile production.
China has succeeded in making itself indispensable in global trade. Beyond being the world’s main manufacturing hub, the country has unlocked a new frontier to conquer: the supply and processing of rare earth minerals.
These rare earths refer to 17 magnetic elements that include neodymium, germanium, and gallium, which are critical components in the production of smartphones, laptops, solar panels, electric cars, medical equipment, and even military weaponry. China crept up behind the rest of the world as it rapidly expanded its capacity to mine and process these materials, which require technical precision to safely extract, to the point that it could easily paralyze global factories of electronic gadgets and appliances should it wish to do so. This dominance had been Beijing’s key bargaining chip against the US over an escalating tariff war, which it has decisively won.
Deep-seated dominance
These precious minerals had been the centrepiece of the series of US-China trade negotiations that began in May. In retaliation to the sky-high duties imposed on China-made goods entering the US, Beijing imposed permit controls for the export of rare earths on 4 April, two days after President Donald Trump’s “Liberation Day” tariffs that raised the duty to 145 per cent.
By October, China further tightened export controls by requiring government approvals on such shipments. Immediately, international carmakers were quick to admit that their factories would fall short of their daily production targets without these precious metals from China. The country only eased these export restrictions following the 30 October truce between Trump and President Xi Jinping, although it appears this can easily be reversed should trade discussions turn sour again.
Trump will never admit it, but the US lost its own trade war to China after it quickly realised how heavily dependent American companies are to these rare earths under Beijing’s control. Graph 1 shows just how the industry is at China’s mercy: in 2024, 61 per cent of the global supply of these precious metals had been mined within China, with Myanmar a far second with a 16 per cent share. The US barely accounted for a tenth of global supply, data from the International Energy Agency showed.
China’s dominance is more pronounced when one looks at refining capacity. Last year, 91 per cent of rare earths had been processed in China, with Myanmar trailing at 4.5 per cent of total refinery capacity. By 2040, China’s share is projected to drop to 75 per cent – keeping a dominant, monopolistic position – while Myanmar and the US are projected to play catch-up.
Artificial intelligence (AI), which is the largest factor that steered the financial markets in 2025, is likewise heavily dependent on rare earth minerals. The demands of rapid-fire AI expansion, which include powerful microchips and larger data centres, meant more rare earth components would be needed to sustain this pace. With other countries unable to catch up, China cements its supremacy in rare earths.
China stocks up
The unearthing of China’s quiet dominance in these critical minerals helped fuel Chinese equities so far this year, on top of the buzz surrounding AI tools and services. Graph 2 illustrates how mining stocks outperformed composite China stocks indices from January-November.
For example, the MSCI China Materials index soared by 86 per cent between 1 January to end-November, beating the 30 per cent climb of the main MSCI China Index over the same period. The Raw Materials sub-index of the Shanghai Stock Exchange also climbed 47 per cent year-to-date, against the 16 per cent increase of the Shanghai Composite Index. We observed a similar trend in our own Lundgreen’s Invest – China Fund, wherein a minerals company listed in Hong Kong had been the biggest growth driver between July-September 2025. CMOC Group, a privately held Chinese company that is a top global producer of cobalt, molybdenum, tungsten, and copper, saw its share price nearly double during the quarter on the back of the push towards renewable energy. Cobalt is widely used in rechargeable batteries, while molybdenum is a key component for iron and steel products.
More than the AI-driven rally in global stocks, one can now see that this has generated a complementary rise in share prices for firms engaged in the mining and processing of rare earth elements. Coupled with recent policies in the Mainland encouraging additional consumer purchases of electronic products over the past year, there is strong support for this segment.
China stocks are tracking a steady ascent since 2024 that was only briefly derailed by outsized tariffs set by the US. With a long-term truce with Washington in place, we see Chinese assets as good additions to the portfolios of global investors trying to pivot away from the US. We remain upbeat about prospects in developing Asia even as we recently tweaked our advice to investors to take well-considered risks in adjusting their allocations. With a steady climb and potential strong returns, China’s rare earths producers definitely meet these criteria.
