How China Accidentally Then Deliberately Built Dominance

In a wide-ranging discussion hosted by Wikistrat, critical minerals expert Dr. Marina Zhang reveals that China's dominance in rare earth elements stems not from geology alone but from decades of deliberate ecosystem-building raising hard questions about whether the West can replicate it without derailing the clean energy transition.

Rare earth elements (REEs) power the magnets in electric vehicles, wind turbines, and advanced defense systems. Yet public discourse often reduces them to a simple story of Chinese “weaponization” of supply chains. In a December 4 Wikistrat webinar, Dr. Marina (Yue) Zhang, associate professor at the Australia-China Relations Institute at the University of Technology Sydney, offered a more nuanced picture: China’s position was built patiently over decades through chemistry, engineering talent, environmental trade-offs, and integration with downstream industries. Replicating it elsewhere will be far harder — and potentially more costly — than many policymakers assume.Her analysis carries direct relevance for Canadian mining executives, investors, and policymakers as Canada seeks to expand its role in critical minerals while navigating US-China tensions and the urgent demands of the energy transition.

How China Accidentally — Then Deliberately — Built Dominance

China did not set out with a master plan to dominate rare earths in the 1970s. It began with a pressing energy security problem and rich deposits, particularly light rare earths in Inner Mongolia. Through sustained investment in separation chemistry and processing, China developed industrial-scale refining and magnet production capabilities that the rest of the world largely lacked. Zhang emphasizes that this was not merely resource extraction. China built an entire ecosystem: thousands of specialized engineers, tacit knowledge accumulated process by process, vertically integrated supply chains, and tight linkages to downstream sectors such as electric vehicles and renewables. Environmental costs were high in the early decades, but they enabled the scale that now gives China control over roughly 70% of global processing and the vast majority of high-performance magnet production. Importantly, China treats these as strategic minerals alongside oil and coal — a broader definition than the narrower “critical minerals” lists used in the West. This framing helps explain why Beijing has used export controls and licensing as leverage in technology disputes without fully severing supply to industrial users in Japan, South Korea, and elsewhere.

Rare Earths Are Not Rare — Processing Is the Bottleneck

A central insight from Zhang is that rare earths are geologically abundant, especially light varieties. Mining is relatively straightforward. The hard, high-value part is separation, refining, and turning oxides into magnets and other components. This midstream stage is where China concentrated its efforts and where most new Western projects struggle. Countries with deposits — including Canada, Australia, the United States, and Mongolia — face the same reality: shipping raw ore abroad for processing often routes through China or requires building expensive domestic capacity from scratch. New entrants must also compete against China’s ability to adjust prices and absorb byproducts at scale. Zhang notes that most REE demand (over 99% in her estimation) serves industrial and clean energy applications rather than defense. Framing the issue primarily as a national security threat can therefore obscure the larger economic stakes: disrupting or duplicating these chains risks slowing the energy transition itself.

Why Replication Is So Difficult

No country holds a permanent monopoly, Zhang argues. In theory, others could develop processing capacity within 5–10 years with sufficient state backing. In practice, several barriers stand in the way:

• Tacit knowledge and integration: Decades of hands-on process optimization across hundreds of steps cannot be quickly transferred or reverse-engineered.

• Scale and market unity: China’s large domestic market and political structure allow suppliers and downstream users to coordinate efficiently.

• Environmental and social costs: Western jurisdictions face stricter regulations and local opposition to new refining facilities. China paid these costs earlier; new projects elsewhere would face them now.

• Economics: China can lower prices to undercut higher-cost Western production, making many “China-free” projects uneconomic for commercial buyers.

Zhang points out that even well-funded efforts in Australia and elsewhere have struggled. Political promises to “onshore” processing often ignore these realities. The result can be expensive, slow-to-build capacity that serves narrow defense needs while leaving broader industrial supply chains dependent on existing (largely Chinese) sources.

The Electric Stack and Broader Competition

Rare earths sit at the center of what Zhang and others call the “electric stack” — the combination of electrification, advanced manufacturing, robotics, and digital infrastructure. Demand is rising not only from EVs and renewables but also from defense applications such as drones. China leads in manufacturing scale and innovation speed across much of this stack. The West’s response — friend-shoring, subsidies, and export controls — reflects genuine security concerns but also risks fragmenting supply chains at a time when rapid deployment of clean technologies is needed. Zhang observes that both the US and China are investing in alternatives and recycling. Technological substitution (for example, reducing cobalt or nickel intensity in batteries) has happened before and could occur again. However, heavy rare earth magnets remain difficult to replace quickly for high-performance applications.

Implications for Canada

Canada possesses significant REE resources and has positioned itself as a reliable Western supplier through its critical minerals strategy and alliances with the United States and Australia. Zhang’s analysis suggests both opportunities and cautionary lessons:

• Processing is the prize: Simply mining ore adds limited value. Canada’s long-term competitiveness depends on developing midstream capabilities — something that will require patient capital, regulatory streamlining, and realistic timelines.

• Avoid over-politicization: Treating REEs purely as a geopolitical weapon can distort investment priorities. Most demand supports the energy transition; solutions that dramatically raise costs or delay deployment carry their own strategic risks.

• Leverage alliances pragmatically: Partnerships with the US, Australia, and others can share costs and knowledge, but they must account for China’s pricing power and scale. Pure “decoupling” is neither feasible nor desirable for industrial users.

• Education and tacit knowledge: Building domestic expertise in chemistry, materials science, and processing engineering takes decades — an area where China invested heavily. Canada’s universities and research institutions have strengths here that could be amplified.

• Environmental realism: New processing facilities will face scrutiny. Transparent, science-based approaches that learn from both China’s early mistakes and its later remediation efforts will be essential for social license.

Scenarios for the Next Five Years

Zhang outlines three broad possibilities:

• Best case: China’s share of processing gradually declines toward 60% as new capacity comes online elsewhere. Industrial users gain diversified options without massive cost increases, and energy transition timelines remain intact.

• Worst case: Full decoupling into competing blocs. Both sides build parallel, higher-cost supply chains. The energy transition slows, inflation pressures rise, and technological progress fragments.

• Black swan: Escalation involving Taiwan or another major disruption severs critical semiconductor and REE linkages simultaneously, creating severe shortages across defense, automotive, and clean energy sectors.

Most likely, Zhang suggests, is continued managed competition with selective cooperation. China has little incentive to fully weaponize REEs for non-defense uses, while Western efforts to diversify will proceed gradually and at higher cost.

The Path Forward

China’s rare earth position is formidable because it rests on an integrated ecosystem developed over decades, not on geology or short-term policy alone. Dismantling or replicating that ecosystem quickly is unrealistic. The more productive approach for Canada and its allies is to invest strategically in processing, talent, and alliances while recognizing that complete independence is neither achievable nor necessary for most applications. The real test will be whether Western countries can accelerate diversification without imposing self-defeating costs on the clean energy transition they claim to prioritize. For Canadian miners and policymakers, that means focusing on what is realistically buildable at competitive cost and speed — rather than chasing headlines about “escaping” Chinese dominance. Dr. Zhang’s analysis reminds us that supply chain resilience is ultimately an engineering and economic challenge as much as a geopolitical one. Canada’s success will depend on treating it as such. This article draws on Dr. Marina Zhang’s remarks in the Wikistrat webinar and her related publications. All forward-looking assessments involve substantial uncertainty. Geopolitical conditions, technological developments, and market dynamics can shift rapidly. Readers should conduct independent analysis and consult qualified experts before making investment or policy decisions.