Beijing is shifting its rare earth strategy from domestic dominance to global oversight, aiming to dictate which nations receive the essential technology, workforce, and market access needed to compete on the world stage.

“China’s objective is no longer merely to dominate rare earth production at home. It is to control the global industry by deciding which countries receive the technology, technicians and market access required to compete. Malaysia and Indonesia are the test cases,” stated Jack Lifton, Co-Chair of the Critical Minerals Institute (CMI).

In Malaysia, China’s maneuvers are already tangible and highly strategic. In August 2025, the Chinese government offered technical assistance and rare earth processing technology to Kuala Lumpur, under the strict condition that any partnership involve state-linked entities. Preliminary talks reportedly ensued between a Chinese state-owned firm and Khazanah Nasional, Malaysia’s sovereign wealth fund, regarding a new refinery.

This stipulation for state-backed involvement suggests Beijing is not pursuing standard commercial sales. Instead, it seeks a government-managed industrial alliance allowing China to dictate transferred technology, assigned personnel, supplied equipment, manufactured goods, and end customers. Crucially, it allows Beijing to determine whether the Malaysian sector ever achieves true independence.

Malaysia represents a lucrative target. The nation has banned raw rare earth exports to mandate domestic processing and welcomes both Chinese and foreign capital. It is already home to a massive separation facility in Kuantan operated by Lynas Rare Earths Limited (ASX: LYC), and is aggressively expanding its mining, separation, and magnet production capabilities.

Meanwhile, Western and allied industrial footprints in Malaysia are expanding. Malaco and Carester have unveiled plans for a rare earth separation site, and a joint venture between Lynas and South Korea’s JS Link is advancing a 3,000-tonne-per-year sintered NdFeB magnet plant adjacent to the Kuantan facility.

Experts interpret China’s moves as a campaign of “strategic co-option.” Recognizing it cannot halt all foreign rare earth development, Beijing is embedding its technology and state-owned entities into these emerging supply chains to ensure it remains a vital player. This approach grants Chinese firms access to new feedstocks without straining domestic mines and creates a politically palatable “non-Chinese” supply source for European, Middle Eastern, and Southeast Asian markets. It also supplies Beijing with valuable intelligence on global processing costs, feedstocks, and downstream demand, while preventing Malaysia from evolving into an exclusively American-aligned hub.

However, a looming regulatory hurdle exists. China’s suspension of its October 2025 technology export controls is set to expire on November 10, 2026. If Beijing reinstates these rules, any Malaysian project relying on Chinese technology or personnel would require continuous Chinese authorization. Beijing could selectively license joint ventures while withholding technology from Western-backed projects, effectively demonstrating its power to control global development.

Indonesia presents a distinct scenario with significant potential, but there is far less concrete evidence of an established Chinese rare earth footprint. In February 2026, Jakarta identified eight potential blocks holding rare earths and strategic minerals—reportedly located in Bangka Belitung, Sulawesi, and Kalimantan. A newly formed state-owned entity, Perminas, was tasked with overseeing development and researching processing technologies, though detailed, economically viable reserve estimates remain unpublished.

President Prabowo’s administration is aggressively courting foreign investment in exploration and processing. Officials have stressed the necessity of mastering rare earth technologies, citing South Korea, Japan, and China as models. While this signals strong domestic ambition, a Chinese-controlled rare earth sector is not yet a reality in Indonesia.

China already holds a commanding industrial presence in Indonesia across nickel, batteries, stainless steel, smelting, and infrastructure. Because of this, Beijing is likely adopting a cautious, observational strategy regarding rare earths. It will likely wait to see what resources prove commercially viable—be it mineral sands, monazite and xenotime from tin mining (especially in the Bangka-Belitung region), byproducts of bauxite and lateritic deposits, uranium and thorium derivatives, or metallurgical and coal residues.

Once a proven resource emerges, China can deploy its established Indonesian playbook: offering low-cost equipment, engineering, reagents, financing, metallurgical expertise, and guaranteed purchasing agreements. This model secures control through capital, technical labor, and market access rather than direct mine ownership.

Indonesia’s strict “downstreaming” policy—requiring in-country processing rather than raw material exports—presents both opportunities and hazards for China. While Chinese firms are willing to build local processing infrastructure that Western companies often shun, doing so risks cultivating a genuine competitor. This threat is amplified if Indonesia integrates American, European, Indian, Korean, or Japanese technology alongside Chinese investments.

To mitigate this, China will likely provide sufficient assistance to gain influence but withhold the core knowledge needed for true technical independence. By supplying complete processing plants operated solely by Chinese staff, Beijing can protect its proprietary separation know-how, process designs, and reagent systems. Ultimately, true technological ownership requires local engineers capable of operating, repairing, and reproducing the systems independently—a threshold China appears determined to manage carefully as countries like Malaysia establish themselves as bona fide alternative processing hubs.