China Digs It

How Beijing Cornered the Rare Earths Market

Smelting lanthanum in Inner Mongolia. (David Gray / Courtesy Reuters)

In September 2010, after Japan arrested a Chinese fishing boat captain in disputed waters in the East China Sea, Beijing allegedly retaliated by holding back shipments to Tokyo of rare earths, a group of 17 elements used in high-tech products. Arcane names such as cerium, dysprosium, and lanthanum -- elements that populate the bottom of the periodic table and whose unique properties make them ideal materials in the batteries that power iPhones and electric vehicles -- suddenly commanded global attention. It mattered little whether Beijing actually carried through with the threat (reports are murky), the damage was already done: The world had awoken to the fact that overreliance on China for rare-earths supplies could put the international high-tech supply chain at risk. 

Today, China produces more than 90 percent of the global supply of rare earths but sits on just about one-third of the world's reserves of the elements -- with the rest scattered from the United States (13 percent) to Australia (5 percent). That was not always the case. A few decades ago, the United States led production, primarily through a large mine in California owned by the mining firm Molycorp. But as California's environmental regulations tightened in the 1990s, costs rose and profits declined, prompting the American industry eventually to shutter. 

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In the meantime, China started assuming the role of global supplier, spurred on by the Chinese patriarch Deng Xiaoping's supposed proclamation that "there is oil in the Middle East, but there are rare earths in China." In the last few decades, Chinese production of rare earths skyrocketed, more than offsetting declining production elsewhere. And consumers grew accustomed to what seemed to be a low-cost and reliable supplier in China.  

Yet behind the façade of stability was an

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