China’s industrialization of critical mineral supply chains: A historical perspective.

This article reproduces an excerpt from Chapter 2, “Critical Minerals,” of the report The Great Rebalancing, published in March 2026 by the Deutsche Bank Research Institute and co-authored by Marion Labouré and Camilla Siazon.

No country has capitalized on the critical minerals era more effectively than China. Through a long-term, state-directed industrial strategy and significant investment, China now exercises a near-monopoly over key mineral supply chains, turning industrial scale into a source of significant leverage and a bottleneck for the rest of the world. This bottleneck is particularly challenging to overcome because it is rooted in technological capacity, is capital-intensive, and is slow to replicate.

Focusing on rare earths as the primary example, the remainder of this section explains how China built, consolidated, and ultimately learned to leverage its industrial advantage in the geopolitical sphere.

China’s midstream dominance: the key is capacity, more than reserves.

Up until the late 1980s, the United States was the global leader in rare earth production. The discovery of a large, high-grade rare earth deposit at Mountain Pass, California in 1949 paved the way for mass production of commercial quantities of rare earth elements, which in turn reduced prices and spurred their wider commercial application [1]. France was also once at the forefront of rare-earth processing via its chemical giant Rhone-Poulenc (later acquired by Solvay).

However, western advantage was overtaken as China’s leadership recognized the strategic value of its own vast rare earth reserves and launched a concerted effort to develop its domestic production capacity. To do this, the state supported programs that would work on enhancing mining techniques, invested in R&D for rare earth applications, and provided financial backing from state-controlled banks, allowing domestic rare earth companies to operate and scale even without immediate profitability. As a result, the country’s domestic production grew at a rapid average of 40% annually from 1978 to 1989 [2].

As China’s rare earth exports increased over the 1990s, and the United States began to prioritize environmental and labor concerns that made rare earth processing less viable, production steadily shifted to China as it became increasingly difficult for non-Chinese producers to compete on price. Globalization, combined with China’s emergence as the world’s workshop, further encouraged the US and Europe to step back from domestic production as supply chains migrated to China. With cheaper domestic supplies at their disposal, Chinese manufacturers also had the opportunity to scale the production of key end-products such as high-strength magnets and electronics, crowding out foreign competition in downstream manufacturing industries as well.

To consolidate its advantage in rare earth production, authorities simultaneously reduced
their export quotas – by 54% between 2005-2010 – to secure resources for domestic demand and regain control over operations [3]. This caused international prices for rare earths to increase dramatically, only for Beijing to later release significant volumes of subsidized output to the markets. This self-reinforcing cycle created an oversupply of unprocessed materials, drove down prices, and solidified China’s position as the dominant buyer and processor.

China’s control over global prices is reinforced by a lack of external visibility into true rare earth and critical mineral pricing. This is because China’s two domestic rare earth exchanges operate with limited transparency, while the Shanghai Metals Market publishes indicative price ranges rather than real-time spot prices. Outside of China, the OTC market for these metals is highly opaque, and trading volumes on the London Metal Exchange are virtually non-existent. The cessation of public reporting on China's rare earth mining and refining quotas further contributed to price uncertainty and corporate volatility as foreign companies struggled to navigate the less transparent environment.

As a result of these factors, China has dominated rare earth processing conversion capacity since the 1990s, with its share of global production peaking at 97.5% in 2009. Today, China maintains dominant positions in rare earth mining (~60–70%), rare earth processing (~90%), and magnet manufacturing (~93%). However, while the country overwhelmingly dominates the midstream and downstream segments, it still relies on large volumes of raw metal imports to refine and process.

Thus, China is also one of the largest consumers of raw element imports across critical mineral supply chains. To close this gap, Beijing has expanded its strategic stockpiles and increased overseas investments in mines (e.g. Indonesia) [4]. The record $213.5bn investment in the Belt and Road initiative in 2025—including $32.6bn directed to metals and mining to secure processing capacity and offtake rights – is a recent example of this strategic focus. Through these initiatives, China is also strengthening its position in the upstream segment, moving towards even greater influence across the entire critical mineral value chain.

Finally, over the years, Beijing has consolidated state-owned enterprises in the rare earths industry, enabling vertical integration to control the full value chain. In December 2021, Beijing announced the creation of China Rare Earth GroupCo, merging three major state-owned enterprises and two research institutions. This new entity now controls roughly 70% of China’s domestic rare earth production.

Critical minerals as “Mineral Fordism”.

To understand the relationship between China’s dominance in critical minerals infrastructure and its role in the international order, it is useful to draw an analogy with the global era of American industrialization in the 20th century, a system often referred to as “Fordism”. Fordism was a system of mass production and consumption in the 1920s that relied on standardized parts and moving assembly lines. Its defining feature was vertically integrated production at scale (e.g., the assembly line). Using Stefan Link’s definition in Forging Global Fordism, [5] Fordism also functioned as a tool of state-led modernization, enabling countries to accelerate their industrial development and rearmament in the lead-up to World War II.

This dynamic was evident in how both Germany and the Soviet Union actively sought American technology and production methods to rapidly modernize their economies and spread their own state-led ideologies. As Link demonstrates, the open patent system and permissive technology transfer between the US and the USSR and Germany during this time allowed engineers from these countries to study, copy and replicate the methods from the Fordist production systems in Detroit to ultimately build their own industrial and military capabilities [6]. Fordism’s mass industrialization, combined with the US’s post-war soft power, consumer capitalism and embedded liberal institutionalism, helped cement US hegemony in the 20th century [7].

Just as Fordism underpinned the US’s economic and military rise, China has managed to pioneer and master a new production system for critical minerals that now forms the basis of its geopolitical influence. Through the vertical integration of rare earth companies and dominance as the world’s largest downstream off-taker, China has built the world’s most complete processing ecosystem for critical minerals thus far. And just as Ford standardized physical parts by achieving massive economies of scale and driving down costs, China has effectively set global prices and production standards. This is most evident in its pricing power over many critical minerals, which has made it the most rational choice for Western companies to mine raw materials globally and ship them to China for processing.

Today, the US is seeking to re-industrialize its own rare earth supply chains but faces what Link describes as the constraints of the “late developer.” Unlike the tech transfers that took place between the US and Germany and the Soviet Union during Fordism, in today’s infrastructure-realist world, there appears to be less scope for such cooperation between strategic competitors. The West cannot simply replicate China’s industrial model without also absorbing the immense economic, social, and environmental costs that China accepted during its own decades-long supply-chain transformation.

China’s critical minerals leverage as a tool of infrastructure realism: a rare earths case study

China’s rare earths strategy represents a modern form of “mineral Fordism.” In this section, we examine how its near-total dominance over rare earths and critical minerals has enabled the country to leverage this industrial advantage for geopolitical purposes.

While China has long recognized the advantage of its rare earth dominance and has periodically used export quotas and restrictions since the 1990s, we argue that its initial aim for these controls was to strengthen its own domestic capabilities rather than to exert any geopolitical influence.

The example many cite as the first time China used its market dominance for political leverage was in September 2010, when shipments of rare earths from China to Japan were halted for two months. Many observers concluded that this was a retaliatory measure, since the disruption occurred soon after a hostile clash between Chinese and Japanese boats in the long-disputed waters near the Senkaku Islands (called the Diaoyu Islands by China). Contrary to popular narrative, however, there is little evidence that China publicly announced a targeted export ban on Japan in 2010. While China threatened “strong countermeasures” against Japan, it never formally confirmed exports cuts of rare earths to Japan [8] leaving analysts to infer intent from trade data. China’s premier at the time also said that “China is not using rare earths as a bargaining chip.” [9] Nevertheless, the market impact was clear: rare earth metal prices surged nearly tenfold following the disruption. Afterwards, Japan (in conjunction with the US and EU) filed a successful WTO trade complaint alleging China’s use of export quotas and other restrictions on rare earths, leading China to dissolve any restrictions by 2015.

The more systematic use of rare earths as leverage began as US-China competition intensified during the first Trump administration. Then, Beijing’s export restrictions on its rare earths and critical minerals became more systematic and concentrated. Indications that the government was beginning to view its rare earth dominance as a strategic tool for national security emerged in 2019, when tensions over the US-China trade war reached a new peak. During a high-profile visit to one of China’s major rare earths mining and processing facilities in Ganzhou, President Xi Jinping made remarks to state media that rare earths could be a “new Long March” battleground [10].

This episode can be interpreted as the first informal signal that Beijing had started to consider its near-monopoly over the industry as a point of leverage in its trade dispute with the US. These concerns were amplified one year later when China’s National People’s Congress passed a new export control law, creating a legal framework to restrict exports of sensitive materials on national security grounds. While rare earths were not named outright, the new law allowed Beijing to legally halt its exports to specific countries if it chose to do so.

By the 2020s, as global competition evolved into a tech race, China’s actions became more explicit. In 2023, it banned the export of specialized rare earth processing equipment and imposed export restrictions on gallium, germanium and certain types of graphite [11]. In 2024, these restrictions were tightened into a full export ban of gallium and germanium to the US.

By 2025, China had developed a range of policy tools related to critical minerals, effectively transforming its industrial dominance into a bargaining tool.

[1] “Rare-Earth Metal Prices in the USA Ca. 1960 to 1994,” USGS, 2026, https://www.usgs.gov/publications/rare-earth-metal-prices-usa-ca-1960-1994-0.

[2] “China’s Rare Earths Industry and Its Role in the International Market,” U.S.-China Economic and Security Review Commission, November 2010, https://www.uscc.gov/sites/default/files/Research/RareEarthsBackgrounderFINAL.pdf.

[3] Ibid.

[4] Marion Labouré and Camilla Siazon, “The Top 10 Strategic Commodities to Watch,” *Deutsche Bank Research Institute*, October 22, 2025.
https://www.dbresearch.com/PROD/RIPROD/PDFVIEWER.calias?pdfViewerPdfUrl=PROD0000000000606588

[5] Stefan J. Link, *Forging Global Fordism: Nazi Germany, Soviet Russia, and the Contest over the Industrial Order*, (Princeton: Princeton University Press, 2020).

[6] Ibid. According to Link, Germany ultimately internalized these methods more effectively than the Soviet Union.

[7] Ibid.

[8] A study by Simon Evenett and Johannes Fritz found that while China certainly applied export restrictions on rare earths during the 2010s, there was no evidence of a targeted ban on Japan. In fact, it was Australia, not Japan, that witnessed sharp falls in monthly REM exports from China during this period. Simon Evenett and Johannes Fritz, “Revisiting the China–Japan Rare Earths Dispute of 2010”, CEPR, July 19, 2023. https://cepr.org/voxeu/columns/revisiting-china-japan-rare-earths-dispute-2010.

[9] Su Qiang, “Rare Earth Will Not Be Used as Bargaining Chip,” *China Daily*, October 8, 2010.

[10] The “Long March” comment is seen as a reference to the massive, year-long tactical retreat by the CCP in 1934, as the Red Army escaped the KMT forces during the Civil War. It cemented Mao Zedong’s leadership, allowed the weakened party to survive, and is now celebrated as a foundational symbol of perseverance, sacrifice, and strength. Xi’s visit occurred soon after the US had blacklisted Huawei and came amidst fears that Beijing would restrict or embargo rare earth exports to the US. Zhou Xin, Wendy Wu, and Kinling Lo, “Xi Jinping Visits Rare-Earth Minerals Facility amid Talk of Use in US Trade War,” *South China Morning Post*, May 20, 2019. https://www.scmp.com/economy/china-economy/article/3010977/xi-jinping-visits-rare-earth-minerals-facility-amid-talk-use

[11] Marion Labouré and Cassidy Ainsworth-Grace, “Rare Earth Metals: What to Expect in 2024 in 10 Slides,” *Deutsche Bank Research*, March 26, 2024, https://research.db.com/research/Article?rid=eec2bc46-c2ac-4f07-bcbe-2c75d836a3ee-604&kid=RP0001&documentType=R&wt_cc1=IND-3146993-0000.

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