Why China Dominates Critical Mineral Processing

China's dominance over critical mineral processing is arguably the single most consequential structural feature of twenty-first century supply chains. While media attention often focuses on who mines raw materials, the far more decisive factor in supply security is who refines, processes, and converts them into battery-grade chemicals, permanent magnet alloys, semiconductor substrates, and other advanced intermediates. By virtually every measure, China leads. The country processes approximately 70% of the world's rare earth oxides, 65% of lithium chemicals, 75% of cobalt sulfate, over 90% of natural graphite anode material, 98% of gallium, and 60% of germanium. This concentration did not happen by accident. It is the product of decades of deliberate state-led industrial strategy.

The Strategic Roots of Processing Dominance

China's journey toward mineral processing supremacy began in the 1980s and 1990s, when the country's leadership identified downstream mineral industries as strategic sectors worthy of sustained government support. Deng Xiaoping's famous 1992 remark that "the Middle East has oil, China has rare earths" captured the ethos of treating mineral resources as instruments of long-term strategic advantage. Rather than simply extracting and exporting raw ores, China invested in building the full value chain domestically, from mining through separation, refining, and manufacturing of finished products.

The state provided a suite of tools to accomplish this. Low-interest loans from state-owned banks funded the construction of processing plants. Provincial and municipal governments offered subsidized land, energy, and water. Environmental enforcement was often lax, allowing plants to operate at lower cost than competitors in countries with stricter regulations. Export taxes and quotas on raw ores, particularly for rare earths and later for other minerals, ensured that Chinese processors had preferential access to feedstock while foreign processors faced artificial supply constraints.

Rare Earths: The Template for Dominance

Rare earth elements provide the clearest example of how China built and maintained its processing advantage. In the 1990s, China flooded global rare earth markets with low-cost production, driving competitors in the United States, Australia, and elsewhere out of business. The Mountain Pass mine in California, once the world's leading rare earth producer, shut down in 2002 in part because it could not compete with Chinese prices. With Western mining and processing capacity shuttered, China's share of global rare earth production surged to over 95% by 2010.

Even as mining has diversified modestly in recent years, with projects restarting in Australia (Lynas), the United States (MP Materials), and Myanmar, the processing stage remains overwhelmingly Chinese. Separating rare earth oxides into individual elements and converting them into metals, alloys, and magnets requires specialized chemical engineering knowledge, purpose-built facilities, and access to proprietary solvent extraction technologies that Chinese firms have refined over decades. Lynas operates a separation plant in Malaysia, and MP Materials ships concentrate to China for processing, underscoring the difficulty of replicating this capability outside China.

Lithium: Mining Diversifies, Refining Does Not

The lithium market illustrates how mining diversification has failed to reduce China's processing stranglehold. Australia is the world's largest lithium miner, extracting hard-rock spodumene concentrate from mines in Western Australia. Chile and Argentina produce lithium from brine operations in the Atacama region and the Lithium Triangle. Yet the vast majority of this raw material is shipped to China for conversion into battery-grade lithium hydroxide and lithium carbonate. Chinese companies, including Ganfeng Lithium, Tianqi Lithium, and CATL-affiliated processors, operate the world's largest and most cost-efficient lithium chemical plants. As of 2024, China accounted for roughly 65% of global lithium chemical refining capacity.

The reasons for this concentration mirror the rare earths story. Chinese converters benefit from economies of scale, vertically integrated supply chains that connect mines (including Chinese-owned operations in Africa and South America) to processing plants to battery factories, and government subsidies that reduce effective capital costs. New lithium hydroxide plants being built in Australia, the United States, and Europe face higher construction costs, longer permitting timelines, and limited access to downstream battery manufacturing customers compared to their Chinese counterparts.

Cobalt: From Congolese Mines to Chinese Refineries

The Democratic Republic of Congo produces over 70% of the world's mined cobalt, but Chinese companies own or hold stakes in fifteen of the nineteen largest cobalt-producing mines in the country. Companies such as CMOC Group (formerly China Molybdenum), Huayou Cobalt, and Jinchuan Group have acquired mining assets in the DRC over the past decade. The raw cobalt is then shipped to China, where it is refined into cobalt sulfate and cobalt metal at facilities that account for approximately 75% of global refining capacity. This mine-to-refinery pipeline gives Chinese firms near-total control over the cobalt supply chain despite the mineral being physically extracted in Central Africa.

Graphite: A Quiet Monopoly

Natural graphite, the primary anode material in lithium-ion batteries, receives less attention than lithium or cobalt but represents one of the most extreme cases of Chinese processing concentration. China mines approximately 65% of the world's natural graphite and processes an even higher share into the purified spherical graphite required for battery anodes. The purification and spheronization process involves complex thermal and chemical treatment steps that Chinese processors have mastered at industrial scale. In late 2023, China added graphite to its list of materials subject to export controls, sending a clear signal about its willingness to use this dominance strategically.

Gallium and Germanium: Semiconductor Supply Leverage

Gallium and germanium are minor metals with outsized strategic importance. Gallium is essential for gallium arsenide and gallium nitride semiconductors used in 5G telecommunications, radar systems, and LED lighting. Germanium is critical for fiber optic cables, infrared optics, and satellite solar cells. China produces approximately 98% of the world's primary gallium (as a byproduct of alumina refining) and about 60% of refined germanium. In July 2023, China imposed export licensing requirements on both elements, explicitly linking mineral supply to broader geopolitical tensions with the United States. The controls demonstrated how processing concentration in a single country can be rapidly weaponized through administrative measures.

Implications for Global Supply Security

China's processing dominance creates a structural vulnerability for every nation that depends on advanced technologies. Even when raw minerals are mined in allied countries, the processing step routes through China, negating much of the supply chain security that geographic mining diversification is intended to provide. Breaking this dependency requires sustained investment in processing infrastructure outside China, workforce development in hydrometallurgy and pyrometallurgy, regulatory reforms to accelerate facility permitting, and guaranteed offtake agreements that make new processing plants financially viable. Initiatives such as the Minerals Security Partnership and provisions within the U.S. Inflation Reduction Act are beginning to address this gap, but replicating decades of Chinese industrial investment will take years if not decades of committed effort.

Understanding how China built its processing advantage is essential for any policymaker, investor, or industry executive working on supply chain resilience. The concentration was deliberate, and unwinding it will require strategies that are equally intentional, well-funded, and sustained over the long term.