China Offers Malaysia Rare Earth Processing Technology, but Limits Cooperation to State-Linked Companies

A technology offer with a government ownership condition

China has offered Malaysia technical and technological support for processing rare earths, but the cooperation would be limited to Malaysian companies linked to the government. The offer concerns a country with an estimated 16.1 million metric tons of rare earth deposits and ambitions to build an industry worth RM10 billion, about US$2.3 billion, by 2026.

Chinese President Xi Jinping conveyed the offer during his April 2025 visit to Kuala Lumpur. Official statements from both governments in late August described Beijing's willingness to help Malaysia develop processing capabilities while protecting sensitive Chinese technology. As of August 31, discussions remained preliminary, with no formal agreement signed.

Malaysia wants to earn more from its minerals by processing them at home instead of selling them in raw form. Its ban on exports of unprocessed rare earths, introduced in January 2024, is intended to encourage investment in domestic processing and prevent the exploitation of its resources.

China's offer reaches the most difficult part of that ambition: separating rare earth elements into materials that manufacturers can use. China controls about 60 percent of global rare earth raw material production, processes roughly 85 percent of the world's output and manufactures nearly 90 percent of rare earth magnets.

Malaysia already hosts the world's largest rare earth processing plant outside China, operated by Australia's Lynas Rare Earths Ltd in Pahang. Access to Chinese technology alongside that existing operation could give Malaysia a distinctive position in the global supply chain. It would also require the government to balance commercial opportunity, control over technology and the environmental costs of mining and processing.

Why separation matters as much as mining

Rare earth elements are a group of 17 metallic elements: the 15 lanthanides, plus scandium and yttrium. Despite their name, most are relatively abundant in the Earth's crust. The difficulty is that they rarely occur in concentrations that can be mined economically.

Manufacturers use these elements in semiconductor chips, electric vehicle motors, wind turbines, smartphones, computers and military equipment, including radar systems and advanced weaponry. Neodymium, dysprosium and praseodymium are among the elements in Malaysia's deposits that are critical for powerful magnets used in electric vehicles and wind turbines.

Mining provides the starting material. Separation turns a mixture of rare earth elements into individual materials suitable for particular industrial uses. That step is technically demanding, and China's dominance makes it a central bottleneck in the global supply chain. A country can possess substantial deposits while still relying on foreign expertise to turn them into valuable products.

China built its position through decades of strategic investment, state subsidies and relatively lax environmental regulations. Those conditions helped Chinese producers undercut competitors and develop a near monopoly over the most complex processing stages. Its share of processing, roughly 85 percent, is considerably larger than its approximately 60 percent share of raw material production.

Malaysia's National Mineral Industry Transformation Plan 2021-2030 sets out a vision for a "mine to magnet" ecosystem. The aim is to connect extraction with processing and the manufacture of advanced materials, including a target of 20 percent local participation in mine production and substantial manufacturing further along the production chain.

What Beijing is offering and protecting

Xi's proposal limits cooperation to government-linked Malaysian companies because Beijing wants to protect sensitive processing technology. The condition makes government ownership or involvement a central requirement for any Malaysian company seeking access through this arrangement.

Malaysia's Natural Resources and Environmental Sustainability Minister, Johari Abdul Ghani, described the offer as a "strategic development" because of China's strength in separating rare earth elements. Addressing parliament, he explained why Chinese assistance matters:

China's assistance is crucial due to its dominance, especially in the separation of rare earth elements,

Johari said Chinese assistance could make Malaysia the only country outside China with both Chinese and non-Chinese rare earth processing technology. He pointed to the Lynas plant in Pahang as the existing example of expertise outside China's industry. He also said Malaysia would carefully consider its national interests before completing an agreement.

Working through companies linked to the state gives Beijing a way to protect intellectual property and keep technology transfers aligned with its industrial policy. Such arrangements also allow China to coordinate commercial flows with policy goals, including ensuring that new processing capacity does not weaken its own market position.

Malaysia's immediate challenge is to obtain the expertise needed to develop its resources while retaining a meaningful say over the industry. The proposed cooperation could speed up processing development, but its structure places government relationships at the center of access to Chinese technology.

Malaysia's deposits and rules for domestic processing

Malaysia's Department of Mineral and Geoscience estimates that the country holds more than 16 million metric tons of rare earth deposits, with the more precise estimate put at 16.1 million metric tons. Their estimated value is up to RM800 billion, about US$175 billion.

The government imposed a moratorium on exports of unprocessed rare earths from January 2024. Only processed materials can be exported. The policy seeks to keep more of the economic benefit within Malaysia by encouraging domestic plants and manufacturing instead of allowing raw minerals to leave the country.

Mining is banned in permanent forests, environmentally sensitive areas and protected reserves. Those restrictions place limits on where the industry can expand, even as the government seeks investments that could add billions to gross domestic product and create thousands of jobs.

Malaysia currently has only one legal rare earth mining project, in Kenering, Perak. It uses in-situ leaching technology in collaboration with Chinese state-owned Chinalco. In-situ leaching extracts minerals using a solution introduced into the deposit. The commercial viability of the approach at the project is still being evaluated.

Malaysia's obstacles extend beyond access to deposits. They include a shortage of advanced processing technology and expertise, concerns about environmental damage and radioactive waste, illegal mining and smuggling, and geopolitical tensions that complicate partnerships with China and Western countries.

Lynas gives Malaysia another technology base

Lynas Rare Earths Ltd has produced rare earth oxides at its Malaysian operation since 2012. Its plant in Pahang, the largest rare earth processing facility outside China, gives Malaysia an established role in an industry it now hopes to expand using its own resources.

The Australian company has recently begun producing heavy rare earths such as dysprosium and terbium at commercial scale in Malaysia. Heavy rare earths are especially difficult to separate and are in high demand for advanced technologies. The company's new heavy rare earth separation circuit was successfully commissioned in the first quarter of 2025.

In June 2025, Lynas signed a memorandum of understanding with the Kelantan state government for the supply of mixed rare earth carbonate feedstock to its Kuantan plant. Feedstock is the material a processing facility receives to make its products. The agreement connects potential Malaysian supply with processing capacity already operating in the country.

Those developments support Malaysia's position as a center of rare earth expertise outside China. If the proposed Chinese cooperation proceeds, the country could host two different technology bases at a time when manufacturers and governments are searching for more supply options.

Lynas has also faced public protests and regulatory requirements over radioactive waste generated during processing. The government has required the company to move certain processing steps outside Malaysia as a condition for renewing its operating license. Its experience shows the environmental sensitivities that any expansion of the sector must address.

Malaysia's ability to host Chinese and non-Chinese processing technology could attract investment from Japan, South Korea and other countries seeking to diversify supplies away from China. Existing industrial capability gives that ambition a practical foundation, while access to additional technology could broaden the country's role.

How the policy and industry have developed

Malaysia's current talks with China follow years of industrial activity and a more recent effort to keep mineral processing within the country. The main dates show how an existing processing operation, an export restriction and new technology discussions now converge.

• 2010: China halted rare earth exports to Japan during a territorial dispute, causing global price spikes and supply disruptions.
• 2012: Lynas began producing rare earth oxides in Malaysia.
• 2021-2030: Malaysia's National Mineral Industry Transformation Plan sets out its vision for development from mining through to magnet production.
• January 2024: Malaysia's moratorium on exports of unprocessed rare earths took effect.
• First quarter of 2025: Lynas successfully commissioned its new heavy rare earth separation circuit in Malaysia.
• April 2025: Xi Jinping visited Kuala Lumpur and conveyed China's willingness to provide processing assistance.
• June 2025: Lynas signed a memorandum of understanding with the Kelantan state government for feedstock supply.
• Late August 2025: Official statements described China's offer and its condition limiting cooperation to government-linked companies.

The next economic target is 2026, when Prime Minister Anwar Ibrahim wants Malaysia to have developed a rare earth industry worth RM10 billion. The government is also working on a sector blueprint to expand processing within Malaysia and services that add value to its minerals.

Rare earths as a tool of international policy

China's offer comes within a wider strategy that uses rare earth access both to reward friendly countries and to exert pressure on rivals. Its 2010 halt in exports to Japan during a territorial dispute demonstrated how restrictions could affect prices and interrupt supplies far beyond the mining industry.

In recent years, Beijing has tightened export controls on rare earth processing technologies and certain finished products, citing national security concerns. Those restrictions have affected Western companies and encouraged the United States, European Union and Australia to seek alternative supplies and invest in their own processing capacity.

Building a competing industry takes money and time. China's strength extends from raw materials through separation to magnet production, giving it expertise across several connected stages. Competitors must develop processing knowledge and factories while finding customers in a market where established Chinese producers already operate at scale.

Malaysia's willingness to cooperate with Beijing reflects a practical approach to industrial development. Chinese technology could accelerate its plans, while the government is also courting investment from Japan, South Korea and Western partners to avoid relying too heavily on a single country.

For Malaysia, the task is to use those relationships to support domestic industry while navigating tensions between China, the United States and other partners. The ownership condition attached to Beijing's offer adds another consideration to decisions about who builds and operates future processing facilities.

Economic targets meet environmental costs

Malaysia's rare earth industry is expected to contribute up to US$2 billion to gross domestic product in 2025, with the potential to create thousands of jobs. Anwar's target of an industry worth RM10 billion, about US$2.3 billion, by 2026 places the sector within the government's wider economic ambitions.

Domestic processing could retain more spending and employment within Malaysia. The export moratorium is intended to encourage that shift, while manufacturing advanced materials could allow the country to earn more than it would from extracting and exporting raw minerals alone.

Rare earth production also carries substantial environmental costs. Producing one ton can generate large quantities of dust, wastewater and radioactive residue. Communities and regulators therefore face decisions about waste handling and environmental protection alongside decisions about investment and jobs.

Malaysia has learned from controversies surrounding Lynas and is stressing strict environmental, social and governance standards, often shortened to ESG. In this industry, those standards concern issues such as pollution control, the treatment of communities affected by operations and accountability for company decisions.

The National Mineral Industry Transformation Plan calls for sustainable development throughout the production chain, from mining to the manufacture of advanced materials. The restrictions on mining in forests and protected areas, together with the operating conditions imposed on Lynas, are concrete parts of the environmental limits within which the sector must operate.

Illegal mining threatens public revenue

Illegal mining and smuggling remain persistent problems for Malaysia's rare earth sector. In 2023, illegal exports to China may have cost the government more than RM200 million in lost tax revenue. Fines are often too low to deter offenders.

Those losses affect the government's effort to make mineral development serve the domestic economy. Minerals that leave through illegal channels bypass the processing policy and reduce the tax income that lawful production and exports could generate.

The government is considering regulations specific to the industry and a national entity to oversee critical minerals. The proposed model is similar to Petronas in the oil and gas sector, giving the state a central role in managing strategically valuable resources.

Enforcement, environmental supervision and access to suitable technology all form part of the same development challenge. Malaysia needs to combat illegal extraction while attracting investment that follows environmental, social and governance standards and keeps more of the production chain inside the country.

A wider race to build supply alternatives

The United States has resumed operations at the Mountain Pass mine in California and is investing in new magnet manufacturing facilities. The European Union is pursuing green technology partnerships and urban mining initiatives, which seek to recover useful materials from discarded products, to diversify supply.

China's willingness to absorb low profits and maintain oversupply makes it difficult for competitors to gain market share. State subsidies and industrial policy have also supported a surge in patents related to rare earths and technological advances, strengthening its leadership.

Malaysia's proposed cooperation could provide a model for other countries rich in mineral resources, including those in Africa, that want to develop processing industries between extraction and final manufacturing. Joint ventures with companies linked to the state and agreements committing major buyers to purchase output could help those countries retain more value and create domestic jobs.

Malaysia brings together natural deposits, a growing research ecosystem and an established processing operation. Its prospects now depend on securing technology transfers that protect national interests, enforcing regulations, embedding sustainable practices and attracting suitable investment.

Electrification and green energy are increasing the importance of the minerals used in motors, turbines and other technologies. Malaysia's proposed partnership with China offers a route to greater industrial capability, while its existing Lynas operation and relationships with other investment partners give it additional options. Economic benefits will have to be pursued alongside environmental protection and careful management of international relationships.

Key Points

• China has offered Malaysia rare earth processing assistance, limited to companies linked to the Malaysian government to protect sensitive technology.
• Xi Jinping conveyed the offer during his April 2025 visit to Kuala Lumpur. Talks remained preliminary as of August 31, with no formal agreement signed.
• Malaysia holds an estimated 16.1 million metric tons of rare earth deposits, valued at up to RM800 billion, about US$175 billion.
• A moratorium on exports of unprocessed rare earths has been in effect since January 2024. Mining is banned in permanent forests, environmentally sensitive areas and protected reserves.
• China accounts for about 60 percent of global raw material production, roughly 85 percent of processing and nearly 90 percent of rare earth magnet manufacturing.
• Lynas operates the largest rare earth processing plant outside China in Pahang and has begun commercial production of heavy rare earths in Malaysia.
• Malaysia expects the sector to contribute up to US$2 billion to GDP in 2025 and aims for an industry worth RM10 billion by 2026.
• Radioactive waste, illegal mining, lost tax revenue and competition between international partners remain central challenges.