China’s move to set up a global force in the strategic rare earth sector could help it pre-empt and respond to future external challenges, including trade tensions with the United States, analysts say. The China Rare Earth Group was formed after the merger of units from the Aluminium Corporation of China, China Minmetals, Ganzhou Rare Earth Group and two rare earth technology developers, the state assets watchdog said on Wednesday. Analysts believe the consolidation will help maintain the country’s global competitiveness and give it a trump card to play in conflict with the US, though many warned it should be careful not to overplay its hand. Rare earth is composed of 15 elements and are vital components in smart electronic devices, wind turbines, electric cars and military equipment. China’s dominance of rare earths supply is a concern in the West The merger is the largest of its kind in the world. Based on 2021 data, the group will have 52,719 metric tonnes of mining quota, or 31 per cent of the national total, and 47,129 metric tonnes of smelting quota, or 29 per cent of China’s total. It accounts for about 62 per cent of heavy rare earth supplies nationally. “This round of consolidation will further increase industrial concentration, helping forge a trump card in global resource competition,” said Galaxy Securities analyst Yan Yulu. Rare earth is one of only a few resources in which China enjoys market dominance , contrasting sharply with its reliance on oil imports from the Middle East and iron ore from Australia. Former Chinese leader Deng Xiaoping, who opened the country to the world four decades ago, once compared China’s control of rare earth to the Middle East’s dominance of crude oil supply. “Considering the global geopolitical tension and intensified competition for resources, such a move will enhance domestic control,” Yan wrote in a research note on Thursday. It will let rare earth reflect its true value, and build China’s strategic advantages Yan Yulu “It will let rare earth reflect its true value, and build China’s strategic advantages. It is in line with the country’s best interests.” Li Jin, chief researcher with the China Enterprise Research Institute, said consolidation was necessary because China’s production dominance did not not guarantee it a say in pricing, attributing that to the weakness in downstream technologies. The average export price of rare earths jumped 36 per cent from a year ago in November and doubled from the start of 2020 to US$13,200, customs data showed. “Previous consolidation into six groups failed to solve such issues like homogeneous domestic competition and the technological gap with foreign peers in terms of downstream sectors,” said Li. “China needs an industry leader to participate in international competition.” There are still other major state-owned players in China, including China Northern Rare Earth Group, Xiamen Tungsten and Guangdong Rare Earth Group. Internationally, China’s market dominance has been weakened in the past several years. Its share of global output has fallen from 86 per cent in 2014 to 58.3 per cent last year, according to the US Geological Survey. It boasted 36.7 per cent of global reserves in 2020, ahead of Vietnam and Brazil’s 18 per cent. The US raised its rare earth output by 36 per cent last year to 38,000 metric tonnes. Some hardliners have urged Beijing to weaponsize rare earth after the Trump administration started a trade war that imposed heavy tariffs on most Chinese products in 2018. An export ban was used when relations with Japan deteriorated in 2011, driving their price up by more than tenfold and resulting in a joint complaint of the US, European Union and Japan at the World Trade Organization. Li said market dominance in rare earth is a trump card that could be played in the rivalry with Washington. “But we should refrain from using it temporarily. It’s not the right time,” he said. China exported 44,830 metric tonnes of rare earth in the first 11 months of this year, up 43.3 per cent year on year, according to data from the General Administration of Customs.