In a significant yet still unfolding development, China and Malaysia are inching toward a potential partnership for rare earth processing. This unprecedented geopolitical and industrial shift could reshape both regional supply chains and global strategic calculations. While details remain murky and unconfirmed by either government, multiple credible sources indicate that early-stage discussions are underway for China to share rare-earth processing technology with Malaysia in exchange for access to Malaysia’s rare-earth reserves.
Though notable ambiguities persist and official positions vary, the very existence of these discussions reveals an evolution in China’s approach to safeguarding its dominance in the rare earth sector, and it poses a strategic challenge and opportunity for the United States.
Reuters first broke the news, citing anonymous sources, setting off global debate over the veracity and implications of the proposed partnership. China, which currently dominates between 70–90% of the global rare earth extraction and refining value chain, has long restricted the export of its refining technologies. A move to share this highly guarded capability with Malaysia would indicate a radical shift in Beijing’s approach, likely driven by a blend of strategic and economic motivations.
What’s reportedly on the table is a technology-for-resources deal in which China provides refining capacity in exchange for Malaysian access to its currently underdeveloped rare-earth industry. By cultivating allied processing capacity abroad, China could create a “China-plus-one” model, thereby cushioning its industry against mounting Western efforts to diversify away from Chinese supply chains. For Malaysia, the deal could help accelerate its national ambition to build a vertically integrated rare-earth ecosystem, though not without geopolitical risks.
Several Malaysian insiders cited by Reuters suggest that China is using this proposed collaboration to undercut Australian rare-earth giant Lynas, which already operates a major cracking-and-leaching plant in Pahang. However, such assertions remain speculative at best. Still, China sees the rise of alternative suppliers like Lynas and American-backed projects in Australia and Africa as credible threats to its market stranglehold.
Beijing’s offer to export sensitive processing technology may also be motivated by a desire to shape and control regional supply chains before Western powers can establish meaningful alternatives. In this sense, Malaysia offers both geographic advantage and complementary infrastructure.
From Malaysia’s perspective, industrial ambition and environmental caution are competing forces. Prime Minister Anwar Ibrahim’s administration has articulated a clear goal: to develop a strategically vital rare-earth sector while imposing strict safeguards for environmental and national interests. The country boasts an estimated 16.1 million metric tons of rare earth reserves. It has placed a nationwide ban on the export of unprocessed rare earth materials since early 2024 to prevent external exploitation. New foreign partnerships must involve local processing, job creation, and technology transfers.
Malaysia’s sovereign wealth fund, Khazanah Nasional Bhd, has emerged as a potential key player. Initial reports suggested Khazanah would serve as China’s local partner in the proposed refinery. However, public statements from Khazanah officials appear inconsistent. Managing Director Datuk Amirul Feisal Wan Zahir implied openness and government backing for rare earth initiatives. At the same time, Khazanah’s Chief Investment Officer Hisham Hamdan flatly denied that any active talks with China were underway. This apparent contradiction reflects the sensitive nature of the negotiations and the strategic dilemma facing Malaysian stakeholders.
Environmental concerns and the traditionally strong public resistance to rare earth mining in ecologically sensitive areas remain substantial hurdles. Malaysian law already prohibits mining in forest reserves and water catchment zones. Permitting complexities at both federal and state levels further complicate the path forward.
One of the key interests for the United States in pursuing investment in Malaysia’s rare earth infrastructure is the opportunity to diversify its rare earth supply chains away from reliance on China. This strategic move would not only help reduce dependence on a single source but also establish a crucial foothold for the U.S. in the Indo-Pacific region. By bolstering the resilience of defense-critical supply chains, the U.S. can better safeguard its national security interests. Moreover, this initiative offers an opportunity to promote environmentally responsible resource development aligned with Western standards. Malaysia has indicated its openness to collaboration with various stakeholders, provided their efforts align with the country’s own development goals and emphasize environmental responsibility. This creates a unique platform for U.S. agencies, such as the Development Finance Corporation (DFC), to partner with private American firms and offer alternatives to Chinese technology, supporting Malaysia’s ambitions while also reinforcing American industrial security.
Whatever the outcome of the China-Malaysia talks, the message is deafening: the geopolitical playbook in rare earths is evolving. China appears willing to trade technology for market influence. Malaysia is actively seeking to expand its rare-earth capacity. And the rest of the world, especially the United States, now faces a choice: act quickly and invest smartly, or watch Southeast Asia become yet another theater dominated by Beijing’s technological diplomacy.
REEx recommends that the Trump administration consider a strategic investment package, either through a public-private partnership or state-backed financing mechanisms, to support Malaysia’s aspirations while reinforcing U.S. interests. The rare earth race is no longer just about mining; it’s about alliances, technology, and who writes the rules of tomorrow’s techno-industrial order.