Why Australia needs a critical minerals compact with ASEAN

A mineral is “critical” not simply because it is scarce, but because its supply can be choked by a few countries—especially those in a rival political system. Today, that country is China. Beijing dominates the processing and manufacturing of a suite of minerals essential to advanced technologies and defence, and has used this position as leverage, triggering a rush in the West to “de-risk”.

Yet Chinese capacity has also been an asset for the energy transition, pushing down costs and scaling up solar, batteries and electric vehicles. For Australia, whose mineral wealth underpins its export earnings, the question is how to engage with China to advance the energy transition while managing industrial and defence supply security for its own interests and those of its political allies.

The recent US–Australia critical minerals pact illustrates this tension. For Washington, the deal appears a strategic win: securing a trusted ally to help build a “China-free”, defence-centred supply chain. For Canberra, the picture is less clear. US defence demand is too small to justify the multi-billion-dollar investments required for new mines, refineries and magnet plants. Without broader commercial demand, the pact risks becoming a subsidy for a market that does not yet exist at meaningful scale.

The deeper problem is that the United States, China and Australia face distinct vulnerabilities. America wants secure inputs for its defence and tech sectors and seeks to cut reliance on a strategic rival. China wants to secure resource access (including from Australia), preserve its dominance in mid-stream processing and manufacturing to supply its domestic market, and use its processing strength to set trading terms. Australia, by contrast, is most exposed on the demand side. As the world’s largest exporter of hard-rock lithium and a major rare earths producer, its risk is not supply shortage but a dangerous concentration of demand. It relies heavily on one dominant buyer—China—to convert its ore into usable materials. This monopsony dynamic leaves Australia exposed to trade restrictions, geopolitical shocks and price swings.

For Australia, true “de-risking” requires demand-side security, including diversity in both mid-stream processing capabilities and downstream markets.

The “Future Made in Australia” agenda seeks to build onshore processing and manufacturing and move beyond a quarry model. But greenfield processing plants face expensive energy, high labour costs and distance from downstream markets. Subsidies alone cannot fix these structural disadvantages.

Moving up the value chain remains important, but it does not mean building everything onshore. As smart manufacturing increasingly shifts from selling products to selling services, Australia can build its strengths in technology, IP and high-value knowledge—advanced metallurgy, proprietary refining, automation and mining services—through a networked production system. To turn this into a coherent strategy, Australia needs partners closer to home.

Southeast Asia is the missing keystone in Australia’s critical minerals strategy.

First, ASEAN has already become a major manufacturing base, with Indonesia’s nickel, Vietnam’s rich deposits of rare earths and Thailand and Malaysia’s fast-growing EV and battery industries. Governments in the region are seeking to move up the value chain, not just export raw ore. ASEAN countries can host cost-effective mid-stream processing for their own and Australian ore, locating plants where industrial zones are ready and logistics make economic sense.

Second, ASEAN’s downstream demand for critical minerals is promising. The region is a fast-growing consumer market for EVs and electronics.

Third, an Australia–ASEAN network serves American and other Western democracies’ interests better than a narrow bilateral deal. A diversified supply chain anchored in Australian product-to-services systems and ASEAN manufacturing is more scalable and resilient than a model built solely around Western economies. It provides a credible alternative to over-reliance on China without forcing ASEAN states into a rigid camp.

Some may argue that the coordination costs required for such a pact are beyond Australia’s capacity, especially given China’s deep role in ASEAN’s infrastructure and minerals projects. Yet Australia is not without diplomatic weight. It is a long-standing dialogue partner of ASEAN, a founding member of the East Asia Summit and an active player in regional forums.

Australia cannot “lead” ASEAN in a traditional sense; regional states are protective of their sovereignty and adept at balancing great powers. Its role is that of a connector, leveraging three assets: trust, capital access and technical credibility.

Australia is a trusted partner for both ASEAN nations and the Western allies. It can help unlock Western capital—from multilateral banks, export credit agencies and private investors—that ASEAN developers need but often struggle to access. It can also act as a secure, standards-setting, technology-enabled hub that connects resources to the capital and markets of the democratic world, helping ASEAN producers sell “green” minerals into markets that demand traceability and high ESG performance. Crucially, this system need not exclude China. Instead, it offers an alternative path to access premium markets in Europe and North America, in which China also aspires to participate.

A practical vehicle for this strategy is an Australia–ASEAN critical minerals compact built on four pillars: collective offtake, with ASEAN utilities and carmakers making “group-buy” commitments for future supply; a shared processing network across Australia and ASEAN; a common rulebook to align environmental and labour standards and ensure full traceability; and risk-sharing finance, backed by governments and development banks, to de-risk private investment.

For its future minerals strategy, Canberra must stop focusing primarily on balancing the superpowers and start looking seriously to its neighbours. In the global contest for critical minerals, a dual-track approach is essential. One track is for the minerals and products essential for weapons systems and highly sensitive technologies; these justify considerably higher costs and strictly “China-free” supply chains. The second track is for the vast volume of minerals needed for the energy transition. Here, the priority is scale, affordability and decarbonisation. Partnering with ASEAN—and managing Chinese involvement rather than banning it—makes economic and security sense for both Australia and ASEAN countries.

Dr Marina Yue Zhang is an Associate Professor at the Australia-China Relations Institute, University of Technology Sydney.She is the author of “Demystifying China’s Innovation Machine: Chaotic Order” (Oxford University Press, 2022; with Mark Dodgson and David Gann).