Myanmar: the soft underbelly of China's rare earth dominance

When Japanese Prime Minister Sanae Takaichi penned an opinion article ahead of a visit to Australia in April, the first topic she mentioned was critical minerals supply, specifically, rare earths. No country understands rare earth exposure better than Japan, which felt the force of Beijing's 2010 export embargo and is acutely conscious of the 2025 controls echoing it. Beijing dominates the supply chain from mine to magnet. The Western response has been to ask how to reduce dependence on China. The question getting less attention is even harder: what if China’s own rare earth supply chain is fractured? China’s supply chain depends, quite substantially, on Myanmar. And Myanmar is on fire.

The stakes are high. Adamas Intelligence projects that demand for the magnet rare earth pairs - neodymium-praseodymium and dysprosium-terbium - will grow sevenfold to around $US 70 billion by 2040, driven by electric vehicles, aerospace, defence and renewable energy. Even that figure does not fully account for the coming robotics wave. None of this demand can be satisfied without processing capacity.

Processing is precisely where the chokehold is tightest. In April 2026, the International Energy Agency (IEA) reported that China controls over 90 percent of global rare earth separation capacity and estimates that $US 60 billion investment will be required outside China by 2035 to develop diversified supply chains. It estimates the potential cost to global economic activity from supply disruptions at $US 6.5 trillion. Lynas Rare Earths is the only company to have established commercial separation capacity at meaningful scale outside China in decades, and Iluka Resources is trying to follow, with a  $A 1.65 billion loan from the Australian government to develop its Eneabba refinery.

Rare earths are not all the same. The seventeen elements grouped under this misleading name vary significantly in abundance, value and strategic significance. While light rare earths are not so rare, the heavies - dysprosium and terbium in particular - are genuinely scarce and have no known viable substitutes at scale for their role in high-performance magnets. Some sources estimate that China controls up to 99% of separation capacity for the heavy rare earths. These are overwhelmingly sourced from ionic adsorption clay deposits, primarily in southern China and increasingly, Myanmar. When policymakers talk about rare earth supply chain risk, the ones that really matter are heavy rare earths. And when they talk about heavy rare earths being concentrated in China, the concentration and the real risk is in Myanmar.

Global Witness analysed Chinese customs data and reports that Myanmar supplied about 41,700 tonnes of heavy rare earth oxides to China in 2023. This was more than double China’s own domestic mining quota and approximately 98 percent of China’s heavy rare earth oxide imports for that year. A report by the Institute for Strategy and Policy - Myanmar and quoted by the Stimson Centre observes that Myanmar has accounted for over 60% of China’s heavy rare earth imports by value each year in recent years. These figures are conspicuously absent from the charts and infographics that circulate in policy discussions about supply chain diversification. The US Geological Survey 2026 data records Myanmar as a significant producer - 27,000 tonnes in 2024, 22,000 tonnes in 2025 - yet lists reserves as “NA”. This is not a data anomaly. Myanmar’s deposits lie in militia-controlled or contested frontier territory, without systematic exploration, or even legal and regulatory oversight. What may effectively be the world’s largest producer of heavy rare earths does not officially exist in resource terms.

The geology is attractive. The problem is everything else. The deposits are shallow ionic adsorption clay deposits, amenable to in-situ leaching - a low-cost method of extraction that causes significant damage to health and environment - and heavily concentrated in northeastern Kachin State, particularly near Chipwi and Pangwa near the Yunnan border, as well as in Wa Special Regions and perhaps also in Shan State. At least 370 rare earth mining sites and roughly 2,700 leaching pits have been documented in Kachin State alone. This is not artisanal extraction, but industrial-scale production, embedded within a web of complex armed group relationships that has been publicly mapped in some detail: Chinese firms partnering with the United Wa State Army, the NDA-K, and other militia, non-state armed group and military actors, with export channels running almost exclusively into Yunnan.

This supply chain is more fragile than these production figures suggest. In Kachin State, the Kachin Independence Organisation, which exercises authority over much of this territory, has publicly wavered on rare earth extraction in response to community opposition. Ammonium-based in-situ leaching is environmentally destructive: soil degradation, waterway contamination, and downstream impacts reaching into Yunnan itself. Kachin civil society has pushed back hard, and KIO leadership has faced real internal pressure to restrict operations.

China did not support the 2021 coup, and initially did not condone it, regarding it as destabilising. At the time of the military takeover, things were going well. The National League for Democracy (NLD) government had finally begun to deliver on decades of Belt and Road ambition - port access, pipelines, infrastructure investments that helped address Yunnan province’s landlocked position and offered Beijing a way to circumvent the Straits of Malacca. At an Asialink roundtable on Myanmar in 2021, I argued that China stood to lose more from the coup than any other external stakeholder. However, China has been pragmatic and has adapted.

Beijing has now committed to the military and is extracting what concessions it can. Beijing may emerge as the dominant economic beneficiary of this chaos, so long as its supply chain is not disrupted. The BRI projects that the NLD government had negotiated carefully - resisting unfavourable terms, managing public sentiment, preserving sovereignty - are now being advanced by a junta that finds itself, once again, dependent on China, and cannot afford to say no. The calls by military-aligned figures to restart the Myitsone Dam project, long suspended after intense domestic opposition, illustrate this point. The junta’s isolation and weak governance have made Myanmar more prone to exploitation, not less. And in the frontier states where the heavy rare earths are located, this is exactly what has enabled Chinese extraction interests to expand. China may not win above the ground, but below it the trajectory is clear.

Things in Washington have also been stirring. Aware of the strategic value, some actors have attempted to leverage rare earth access as a bargaining chip in approaches to the Trump administration, and there are whispers about a possible recalibration of sanctions policy. There are some discussions about whether current policy settings on Myanmar remain fit for purpose, and rare earths are explicitly at the centre of these. The logic being aired is familiar: if Western interests do not engage, others will - and others already have.

Engagement, however, is not a straightforward matter: the heavy rare earth deposits are not in junta-controlled territory. They sit under the authority of ethnic armed organisations with complex relationships with the junta, with Beijing, and with their local communities. Normalising relations with Naypyidaw would not simply turn on the minerals tap, and any serious attempt to contest Chinese dominance in this supply chain would require working with the actual power structures on the ground. Western governments have had very limited formal engagement with non-state armed groups since the end of the Cold War. Not China, though: Beijing has been cultivating these relationships for decades. This is not an argument for engagement, but only an observation that this is complex and politically uncomfortable.

I have no clear, simple answers. However, I do urge closer attention. The humanitarian tragedy unfolding in Myanmar is real, and for those of us with personal ties to the country it is very painful. Precisely for this reason, any policy responses must not be guided by indignation and well-intentioned gestures grounded in principle alone. The stakes are high: economically, geopolitically, and from a humanitarian perspective. The problems are genuinely complex and wicked: every actor’s best move depends on what every other actor does. However, hard problems do not get addressed by ignoring them or by mere hope.

Policymakers, governments and investors committing time, energy and capital to the rare earths and related industries must pay attention to this and its potential implications. Myanmar’s deposits are geologically attractive, strategically significant, and often almost completely absent from these conversations. The omission is becoming expensive.

Eugene Quah is a Partner at AFG Venture Group who advises on M&A and capital raising in the resources and energy sectors. He lived and worked in Myanmar for over a decade and is a Teaching Fellow at UNSW Law & Justice.