Strengthened Oversight and Licensing Requirements
China has issued new interim regulations on August 22, 2025, through its Ministry of Industry and Information Technology, alongside the National Development and Reform Commission and the Ministry of Natural Resources, designed to reinforce control over the mining, smelting, and separation of rare earth elements—materials essential to electric vehicles, smartphones, wind turbines, and defense systems. The directives apply to both domestically sourced and imported materials, subjecting them to annual production and export quotas, which will now be allocated to firms based on factors such as market demand, ecological protection, resource availability, and economic development goals. Companies must also maintain precise records and upload data into a government-run traceability system, while local authorities are tasked with stronger supervision and enforcement. Non‑compliance may result in legal penalties and reductions in quota allocations.
Strategic Context and Global Market Dynamics
China currently dominates nearly 90 % of global rare earth processing, despite extracting about 70 % of the raw materials, and holds nearly half of the world’s known known rare earth reserves. It also imports significant quantities from Myanmar for processing and export. The move follows previous April measures introducing licensing requirements for seven additional rare earths, samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, framed around the need to “better safeguard national security and interests” and fulfill non‑proliferation duties. Beijing also intensified anti‑smuggling activities in July amid security threats.
Moreover, China wields significant leverage in global trade negotiations by virtue of its dominant role in the rare earths sector, processing around 80 % of global critical minerals including tungsten and other strategic elements. That leverage recently played out in discussions with the U.S., where China offered eased shipments in exchange for more flexible U.S. policies.
Impact on Trade, Supply Chains, and Diplomacy
While the precise production and export quotas remain undisclosed, compounding global supply uncertainty, China has reportedly issued some export permits, though explicitly excluding military use. These new interim rules represent both a tightening of licensing requirements and a strengthening of environmental standards across the industry.
Meanwhile, diplomatic developments have influenced outcomes. A recent U.S. – China agreement reached during trade discussions aims to expedite rare earth shipments to the U.S., helping stabilize sensitive supply chains in exchange for U.S. concessions in areas like visa policy and technology exports.
On the U.S. front, steps to reduce reliance on Chinese rare earths continue to accelerate. MP Materials, the U.S.’s only operational rare earths miner, has made significant strides: In July 2025, Apple invested $500 million in the company to support the domestic production of rare earth magnets. Concurrently, the U.S. Department of Defense became MP Materials’ largest shareholder to secure output at stable prices while funding new facilities, including a rare earth magnet plant known as the 10X Facility.
Deeper Structural and Historical Shifts
China’s decades-long dominance in rare earths is rooted in sustained government investment, strategic policy frameworks, and tight export controls—including bans on exporting processing technology. Since 2016, the nation has consolidated its supremacy by implementing export restrictions and fostering state-backed conglomerates such as the China Rare‑Earths Group, which emerged from mergers involving China Minmetals, Aluminum Corporation of China, and others.
These measures echo past patterns of leveraging rare earths as geopolitical tools. For instance, a 2012 WTO case brought by the U.S., EU, and Japan objectively challenged China’s export restrictions as violations of trade rules. Although the U.S. and allies prevailed in 2014, the episode led to reforms—and reaffirmed China’s near‑monopolistic control over refining and supply networks.
Adding to strategic complexity, efforts to diversify rare earth supply chains gained momentum in regions like Greenland, where U.S. and EU interests have encouraged development of rare earth deposits independent of Chinese influence. As Arctic shipping routes open, Greenland’s position as an alternative supplier continues to draw international attention.