China’s Rare Earth Power Play: Why India Should Be Worried

After the recent Deepseek AI disruption, China has pulled another strategic move that’s sending shockwaves across global markets, including India. This time, it’s not about trade wars or tech dominance; it’s about Rare Earth minerals, the quiet powerhouse behind everything from electric vehicles (EVs) to missiles.

Let’s first understand the issue at hand.

China controls around 70% of Rare Earth mining and 90% of refining, including most Rare Earth magnets used in EVs, wind turbines, and defence tech. Its near-monopoly over Rare Earth minerals has made the dependency on such critical ingredients a major geopolitical and economic concern.

However, this dominance is not due to the scarcity of key Rare Earths. Rare Earths are relatively abundant globally, but results from Beijing’s strategic policies since the 1980s have prioritised mining, refining, and subsidising the industry in China, while competitors continue to face higher costs and stricter regulations. 

Recently, China tightened export controls on 17 elements, sparking global alarm. European automakers reported production delays, and in India, shipments of magnets were denied, putting pressure on local EV and auto manufacturers.

Indian auto-part suppliers have warned of imminent disruptions, with some fearing stalled production if supplies don’t resume soon.

Now, let us delve deeper into China’s dominance in Rare Earths, its catastrophic impact, and how India can respond. 

What Exactly are Rare Earth Minerals? (And Why Should You Care?)

Rare Earths are a group of 17 chemical elements (Cerium, Praseodymium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium, Ytterbium, Lutetium, and the Eponymous Lanthanum). Scandium and Yttrium are also referred to as Rare Earths.

Think of them as the vitamins of the modern world. Just like your body needs tiny amounts of vitamins to function properly, every piece of modern technology needs microscopic quantities of these 17 special elements to work.

For example, the neodymium in your phone’s speaker causes it to vibrate, producing sound. The europium in your LED bulbs creates that perfect white light. The terbium in your laptop screen helps produce vivid colours. The uses are many!

China’s Grip on Rare Earths: A Global Monopoly?

Despite their name, Rare Earths aren’t actually rare. They’re found all over the world, much like how salt is found in oceans everywhere. The challenge isn’t finding them, it’s extracting and processing them cleanly and economically, something that China has mastered over decades.

In 2023, China alone accounted for about 69% of global Rare Earth mine output, far ahead of the United States (~12%), Myanmar (~11%), and Australia (~5%). Of this 69%, it controls about 85–90% of the capacity to process Rare Earths from raw ore into refined oxides and metals.

Rare Earth Hotspots

Top 10 countries with the greatest known reserves of Rare Earths in 2024 (in million tonnes of REO)* 

EVs, Electronics, and Defence: The Ripple Effect

Modern EVs, wind turbines, and high-tech electronics rely heavily on neodymium-based magnets, which are compact yet powerful components accounting for the largest share of global Rare Earth demand. Here’s a snapshot:

Magnet Rare Earth Demand (in %)

These magnets are crucial for clean energy. Why?

1. EVs: EVs and hybrids use 2–3x more Rare Earth magnets than traditional cars. Now, the new export restrictions on certain Rare Earth elements and high-performance magnets by China has the potential to lead to imminent production disruptions for vehicles if magnet supplies aren’t cleared.
   
   The disruption threatens to delay the launch of over a dozen new EV models planned in India, potentially slowing the growth momentum of the sector.  This shortage is already forcing major Indian automakers like Maruti Suzuki to cut near-term EV production targets drastically—Maruti reduced its e-Vitara EV production goal by two-thirds from 26,500 to about 8,200 units for April to September 2025 due to these supply constraints.
   
2. Electronics and Semiconductors: Rare Earth elements quietly enable many everyday electronic devices, from smartphones to TV displays. Even the semiconductor industry is affected. Germanium, while not a Rare Earth, is a related critical element that China recently put under export licensing, due to its use in fibre-optic cables, infrared optics, and high-speed computer chips.
   
   For India’s electronics and solar panel industries, any prolonged disruption could drive up component costs and slow the pace of digital infrastructure projects or solar deployments that rely on these materials. 
   
3. Defence and Aerospace: Modern military hardware is bristling with Rare Earths from missile seekers to fighter jet components. Indian defence manufacturers have only a limited ability to source these advanced magnets domestically. This vulnerability has not gone unnoticed, as policymakers are now stressing the need for assured access to Rare Earths as a national security priority.

TL;DR: India’s current Rare Earth output (small as it is) is mostly light Rare Earth elements (lanthanum, cerium, neodymium, etc.), and there is no domestic facility capable of separating heavy Rare Earths at high purity. Moreover, India’s magnet manufacturing capacity is almost nonexistent. To illustrate the gap: China produces an estimated 160,000+ tonnes of Rare Earth magnets per year, feeding its downstream industries, whereas India’s first Rare Earth magnet plant opened in 2023 with a capacity of just 3 tonnes!

What is India Doing?

Facing these challenges, India is now accelerating efforts to develop a robust Rare Earth supply chain through a mix of policy reforms, industrial initiatives, and international partnerships.

Diplomatic Efforts: India is in continuous dialogue with China through its embassy and the commerce ministry to expedite export license approvals for Rare Earth magnets. 

Alternative Import Sources: Recognising the risks of over-dependence on China, the country is exploring and negotiating with other countries to import Rare Earth magnets and materials. 

Developing Domestic Production: The government’s National Critical Mineral Mission, launched in April 2025, aims to enhance exploration and processing of strategic minerals like neodymium, a key component in EV magnets. 

India has the world’s third-largest reserves of Rare Earth elements but currently lacks sufficient processing facilities. To address this, the government is planning production-linked incentives (PLIs) and subsidies to encourage private sector investment and domestic manufacturing of Rare Earth magnets.

Further, the ₹34,300-crore National Critical Mineral Mission, approved earlier with ₹16,300 crore in initial funding, aims to accelerate India’s green transition by boosting domestic and overseas exploration. Public sector firms are expected to contribute ₹18,000 crore.

Industry Collaboration and Innovation: The government is working closely with Indian Rare Earths Ltd (IREL) and private industry stakeholders to fast-track the development of indigenous sources and alternatives.

How Should Investors Gauge This Crisis?

Investors should monitor which companies have high exposure to Rare Earth inputs. For instance, an EV manufacturer that relies on imported magnets could see margin pressures or production bottlenecks if the shortage continues.

But with risk comes opportunity. If India scales up its domestic mining, processing, and recycling of Rare Earths, it could open the door to growth in the mining, engineering, and green technology sectors. While the sector is still in its infancy, future policy support could accelerate progress.

Globally, non-Chinese Rare Earth producers may also benefit as countries diversify their sourcing. Investors tracking this space can focus on:

1. Policy & Diplomacy: Watch for government moves, such as mineral auctions, international tie-ups, or production-linked incentives.
2. Prices & Company Signals: Spikes in Rare Earth prices may indicate rising shortages. Earnings calls that address the shortages affecting supply chains could be early signals of industry shifts.
3. Alternatives & Innovation: Technologies that reduce or eliminate Rare Earth dependence, like new motor designs or recycling breakthroughs, could reshape the landscape over time.
4. Recycling and Waste Management: The push toward urban mining and e-waste recycling could create new business opportunities in the circular economy space.

Well, such a transition won’t happen overnight. Building alternative supply chains, developing processing capabilities, and establishing secure partnerships will take years, possibly decades. But the countries and companies that start now will be best positioned when the global Rare Earth landscape inevitably shifts.

Bottom Line

China’s Rare Earth curbs are ultimately a story about the future of technology, security, and economic independence. For Indian investors, this means looking beyond immediate market volatility to identify long-term structural changes. It’s a reminder that the most important investment themes often emerge from geopolitical shifts that initially seem distant from daily financial markets but ultimately reshape entire industries.

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