Why is China's "value machine" for rare earths still difficult for the world to bypass?

China's leadership in the field of rare earths primarily lies in the foundation provided by rare earth resources, followed by complete infrastructure and production (energy) facilities, as well as the ability to provide complete technologies (especially chemical processes).

From 2015 to 2022, China became a net importer in terms of physical quantity, but a net winner in terms of value: the import volume of rare earth concentrate increased by 3.3 times, and through the "import → processing → export" model, the raw materials were transformed into high-value magnets and compounds, achieving a revenue of 7.57 billion US dollars.

The production cost of heavy rare earths is as high as 45,000 US dollars per ton, while that of light rare earths is only 3,900 US dollars per ton. This explains why the supply chain of dysprosium and terbium remains highly sensitive geopolitically and difficult to replicate outside China.

Geze Wen and his colleagues (Jiang Jiamei, Zhuang Mufan, Guo Yanlan) published a latest open-access study in Environmental Research Letters, using two tools - material flow analysis (MFA, tracking the physical flow of rare earths) and material flow cost accounting (MFCA, accounting for costs and value accumulation), to draw a panoramic picture of China's rare earth supply chain from 2015 to 2022. The core conclusion hits the nail on the head: China's advantage lies not only in rare earth mining, but also in large-scale processing and manufacturing of high-value rare earth products - even though its dependence on raw material imports is continuously increasing.

From 2015 to 2022, the cumulative import volume of rare earth concentrate reached approximately 123.8 million tons. Although domestic mining remains the main source of supply, China's reliance on foreign raw materials has sharply increased: the net import volume of concentrate and primary products has respectively grown by about 3.3 times and 8 times. In fact, while China is conducting large-scale mining domestically, it is increasingly deliberately feeding its processing engine with imported raw materials to consolidate its position as a global rare earth refinery.

True strength lies not in energy or minerals, but in industrial capabilities. Over 95% of production costs come from system and material costs - labor, specialized facilities, capital equipment, and complex separation chemical processes - highlighting that the advantage of rare earths is built upon infrastructure and technical know-how. This is especially true for heavy rare earths, whose production cost is estimated at $45,000 per ton, while that of light rare earth oxides is only about $3,900 per ton. This gap explains why the supply chain related to dysprosium and terbium remains politically sensitive and difficult to replicate outside of China.

Meanwhile, value accumulates at the downstream stage: functional materials, especially magnets, carry the largest economic weight, while rare earth compounds generate the highest added value (75.7 billion US dollars). This forms an intriguing contradiction - China has become a net importer in terms of weight, but remains a net winner in terms of value, converting raw materials into high-value engineering materials through the "import → processing → export" model, thereby earning profits.