China dominates rare earth production and processing, controlling over 60% of mining and 90% of processing. Yet Beijing has struggled to translate this dominance into sustained pricing power. Understanding why illuminates the limits of resource leverage.
The Market Structure
Rare earths aren't actually rare—deposits exist globally. Chinese dominance reflects lower costs and environmental tolerance rather than geology. This means supply can respond to sustained high prices.
Fragmented Industry
China's rare earth sector features thousands of small producers, making coordination difficult. Attempts to consolidate the industry have had limited success, with production repeatedly exceeding quotas.
Strategic Implications
The rare earth experience suggests that even dominant resource positions offer limited coercive leverage. Price spikes trigger substitution and alternative development that erode market power over time.