In recent years, Beijing has quietly leveraged Myanmar’s rich ionic clay deposits to cement its global dominance in the rare earth metals sector. While China remains the world’s top producer of these critical minerals, it now relies heavily on imports from its smaller, conflict-ridden neighbor to secure the heavy rare earth elements essential for high-tech manufacturing, defense systems and renewable energy technologies. This strategic partnership has enabled China to control both upstream extraction and downstream processing, effectively granting it a de facto monopoly over global heavy rare earth supplies.

Myanmar’s Ionic Clay Deposits Drive China’s Strategy

Myanmar’s northern regions, particularly Kachin State, are home to extensive ionic adsorption clay (IAC) deposits that boast higher concentrations of heavy rare earth elements—such as dysprosium, terbium and yttrium—than many other sources around the world. These heavy rare earths are crucial for magnets in electric vehicle motors, jet engine components, precision-guided munitions and wind turbine generators. Chinese companies have invested billions of dollars to develop IAC mines across Myanmar, applying chemical leaching techniques to extract the coveted elements.

From 2018 to 2023, Myanmar’s exports of rare earth oxides to China surged from negligible levels to roughly 42,000 metric tons. Last year, imports from Myanmar accounted for more than half of China’s total rare earth purchases from abroad. This influx has allowed Chinese refiners to blend imported ores with domestic feedstock, optimizing their processing operations and achieving economies of scale unmatched elsewhere. By outsourcing extraction to Myanmar—where environmental regulations are minimal—China can preserve its own domestic deposits and reduce the pollution footprint within its borders, while still exerting control over the global supply chain.

Environmental and Geopolitical Risks in Kachin State

The rapid expansion of IAC mining in Myanmar has come at a significant environmental cost. Leaching processes require the use of strong acids and solvents, contaminating local waterways and soils, and threatening agricultural livelihoods and drinking water sources. Villages near mining sites report dead fish, poisoned crops and respiratory illnesses among residents, fueling resentment against both the military junta in Naypyidaw and the foreign companies operating in the region.

Compounding these environmental hazards are acute geopolitical risks. Since the military coup in 2021, Myanmar has descended into civil war, with ethnic armed organizations such as the Kachin Independence Army (KIA) seizing control of key mining zones. In 2024, the KIA captured sites responsible for nearly half of the world’s heavy rare earth output, briefly halting exports and triggering price spikes. Rebels have since used rare earth concessions as bargaining chips to extract concessions from both the junta and Chinese interests, raising fears that ongoing conflict could disrupt the flow of critical materials to China—and by extension, to industries worldwide.

China has attempted to mitigate these risks by negotiating directly with armed groups and deploying paramilitary-backed proxy firms to secure mining operations. Beijing’s diplomatic outreach includes leveraging infrastructure investments—roads, rail links and hydropower projects under the Belt and Road Initiative—to curry favor with local authorities. Yet the fluid security situation means that supply disruptions remain a constant threat, underscoring the fragility of a supply chain heavily concentrated in a single, volatile region.

Processing and Global Market Implications

Once shipped across the border, Myanmar’s rare earth ores arrive at Chinese smelters and refineries in the form of mixed oxides, which are then separated into individual elements through complex solvent extraction and ion-exchange techniques. China dominates every stage of this value chain: from extraction, to separation, alloy production and the manufacture of permanent magnets and phosphors. This integrated system enables Chinese firms to offer rare earth materials at lower prices and with faster delivery times than competitors in Australia, the United States or Europe.

China’s hegemony has profound implications for global technology industries and national security. Electric vehicles, consumer electronics, renewable energy systems and guided weapons all depend on a steady supply of heavy rare earths. When China tightened export quotas in 2010 and again in recent years, it caused price surges and panic among manufacturers in Japan, the United States and Europe, exposing the vulnerability of diversified markets. Countries seeking to build domestic supply chains now face significant hurdles: developing new mines can take a decade or more, while constructing processing plants requires vast capital investment and stringent environmental controls.

In response, several governments have launched initiatives to reduce dependence on Chinese rare earths. The U.S. Department of Energy has funded pilot projects in Australia, Canada and the American South to recover heavy rare earths from coal mine tailings and diverse mineral deposits. The European Union has signed exploration agreements with African nations and invested in research to develop recycling methods for electronic waste. Yet none of these efforts have replicated the low-cost, high-volume model that China perfected through its operations in Myanmar.

Looking Ahead: Diversification and Reform

Recognizing the perils of overreliance on Myanmar, Beijing is now quietly exploring alternative sources of heavy rare earths within the Mekong region. Malaysia and Laos host similar IAC deposits, and Chinese state-owned enterprises are evaluating joint ventures to establish new mines there. However, stronger environmental regulations in these countries could limit output growth or raise production costs, potentially narrowing the arbitrage advantage China once enjoyed in Myanmar.

Meanwhile, Myanmar’s future role in China’s rare earth empire remains uncertain. If civil conflict intensifies or the international community imposes sanctions on companies exploiting conflict minerals, China may face fresh supply constraints. In that scenario, China might accelerate domestic reforms to reopen previously shuttered heavy rare earth operations or intensify recycling initiatives to reclaim materials from scrap electronics and industrial waste.

China’s reliance on Myanmar underscores the complex interplay between resource security, warfare and environmental degradation in the 21st century. By positioning itself as the indispensable hub for both extraction and processing, Beijing has secured a stranglehold on critical raw materials that power modern economies. Yet this dominance comes at the price of fragile ecosystems, emboldened armed groups and geopolitical tensions that threaten the very supply chains China seeks to control. As global demand for rare earth metals continues to climb, the world will be watching whether China’s Myanmar strategy endures—or if new challengers emerge to balance its rare earth supremacy.

(Adapted from CNBC.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy