(Oct 10): The term rare earths is not unfamiliar to many. From being a critical component of modern technologies to a lever of geopolitical strategy, it frequently makes global headlines. October 2025 began with one such headline in The Edge Malaysia, citing Reuters: “China, Malaysia in talks for rare earths refinery project”.

This headline signifies a potential success story that could position Malaysia as a credible node in the global rare earths supply chain — bridging China’s technological expertise with the trust and market access of Western economies, and becoming a super-magnet for downstream investments across the value chain.

Careful phrasing from Khazanah Nasional Bhd’s chief investment officer, Datuk Hisham Hamdan — who declined to confirm the discussions, but acknowledged that rare earths are among the industries being explored — reflects both caution and strategic intent. It shows that Malaysia’s ambitions in rare earths are still taking shape, yet increasingly central to the country’s industrial policy. Beneath the headlines lies a more intricate reality, shaped by regulatory shifts, technical practices, resource challenges, environmental safeguards, local participation, and geopolitical nuance. Connecting these dots offers a clearer picture of where Malaysia stands — and what will ultimately determine its success.

Until December 2023, in-situ leaching — the method used to extract rare earths from ionic clays — was listed by China’s Ministry of Commerce as a prohibited export technology. In its updated Catalogue of Technologies Prohibited and Restricted from Export (Dec 21, 2023), the same item was moved to the restricted category. This subtle yet significant change marks a shift from prohibition to a licence-controlled framework. It highlights how quickly global regulatory landscapes can evolve — and why Malaysia must stay agile in adapting to them. The change in Chinese policy coincided with the commencement of Malaysia’s pilot ionic-clay rare-earths project in Kenering, Perak, which employs the Chinese in-situ leaching method. This overlap illustrates how policy evolution and practical application are now moving in tandem — Chinese technical practices are no longer confined within China’s borders but are already being applied, under Malaysian regulation, to local deposits.

The commencement of the pilot project signifies the beginning of a cross-learning process in applying the in-situ leaching technique. While it opens opportunities for Malaysia’s industry and regulators to understand the operational and environmental dimensions of this method, it also allows the Chinese side to better appreciate the chemical characteristics of Malaysian ionic-clay deposits. This long-standing cooperation means China already understands the geological and chemical characteristics of Malaysian rare earths. In other words, should cooperation deepen, there would be no steep learning curve. The real challenges now lie not in technology, but in policy direction, investment continuity, and resource development.

With the understanding of the mineral environment, the next natural question for any investor is the security of supply. The Reuters report further highlighted concerns over whether Malaysia can produce enough raw material to support long-term midstream investment — and that concern is valid. Upstream exploration is capital-intensive and high-risk, requiring both policy clarity and sustained investment. Government estimates put Malaysia’s ionic-clay deposits at around 16.1 million tonnes. According to the Business Model for the Development of Ion-Adsorption Clay Rare Earths, at least 600,000 tonnes must be secured for midstream viability. Setting up a refinery capable of producing 70,000 tonnes of rare-earth carbonate annually (equivalent to 30,000 tonnes TREO) is projected to cost RM1.76 billion, with metals and alloys facilities requiring an additional RM378 million. The recent Lynas-Kelantan government memorandum of understanding further reinforces confidence in Malaysia’s geological potential. Investors will not only seek resource estimates, but evidence that deposits can be viably mined and sold. Policies that enable exploration — rather than restrict it — are key to allowing Malaysia’s upstream sector to mature.

Having enough resources is certainly good news, but to mine them responsibly and with strong environmental safeguards is equally paramount. Much of Malaysia’s ionic-clay potential lies along granite belts that overlap forested areas. Allowing mining of ionic clays within forest reserves naturally raises concerns among environmental groups and the public. In this aspect, the government has taken a prudent and responsible step by commissioning the Forest Research Institute Malaysia (FRIM) to lead a five-year impact study (2024-2029) before deciding whether mining should be permitted in forest reserves. According to the minister of natural resources and environmental sustainability, the study will be carried out in three phases — pre-mining (2024-25), mining (2026-27), and post-mining (2028-29) — covering hydrology, soil, flora, fauna, carbon stock, and socio-economics. While this means no mining will take place in permanent forest reserves until at least 2029, mining outside permanent forest reserves should continue with momentum to build Malaysia’s technical capability and institutional knowledge in this sector. At the same time, Malaysia’s midstream facilities are expected to reach full operation only around 2027-2030, leaving a critical window for the upstream to strengthen its ESG practices and readiness. This period should be used to prepare — through knowledge-building, exploration, and regulatory coherence — so that when the midstream is ready, a credible and sustainable upstream supply base already exists.

While Malaysia’s upstream rare-earth industry is still at its infancy, we are not starting from zero. The Kenering project in Perak now serves as a brownfield benchmark for operational learning, while the FRIM-led research project, currently awaiting approvals, is expected to create another opportunity for a local company to build technical capability and environmental know-how. The recent statement in Parliament that the Chinese government is considering developing midstream capacity in Malaysia could not come at a better time for the local upstream ecosystem. Given that Chinese technical expertise has long been present through collaborations, their familiarity with Malaysia’s mineral characteristics will significantly reduce any future adaptation gap should cooperation expand further. This development also aligns with Khazanah CIO Hisham’s comment that the fund’s role includes identifying Chinese or US partners to work with Malaysian entrepreneurs and share research and development knowledge. Taken together, these trends suggest that Malaysia already has natural local anchors — firms capable of bridging international partnerships with local stewardship, ensuring domestic participation in the evolving rare-earth value chain.

It is generally understood that China does not permit the export of its rare-earth refining technology, a policy designed to preserve its technological leadership and market dominance in the sector. However, reports quoting Malaysian officials noted that Chinese President Xi Jinping had requested any future cooperation in rare earths to be restricted to state-linked companies, as a safeguard for strategic know-how. This position should not be seen as a rejection, but rather as a form of selective openness — signalling that China is willing to cooperate, albeit within carefully defined parameters. Notably, China’s decision in December 2023 to reclassify in-situ leaching mining technology from a prohibited to a restricted export category provides a precedent for policy flexibility. We now await with interest whether similar openness could extend to refining technologies, especially as discussions around Malaysia’s potential midstream collaboration evolve. These developments illustrate how strategic interests, regulatory flexibility, and geopolitical considerations are increasingly intertwined. For Malaysia, this evolving landscape presents not just challenges, but a unique opportunity to define its place within the global rare-earth value chain.

Rare earths are no longer just industrial inputs; they are strategic commodities. By potentially hosting refineries from both Lynas and a Chinese entity, Malaysia is uniquely placed to bridge East and West within the global supply chain. This dual presence enhances Malaysia’s relevance, resilience, and credibility — positioning the country as a neutral and reliable node in the rare-earth ecosystem. Few nations can engage both sides while maintaining environmental integrity and sound governance.

Connecting all the dots provides a more holistic view of Malaysia’s position within the evolving rare-earth supply chain. From policy evolution and environmental prudence to midstream ambitions and global partnerships, the various strands of Malaysia’s rare-earth strategy are beginning to converge. Yet all these aspirations — from sustainability commitments to international cooperation — ultimately rest on one foundation: a strong, ESG-driven upstream sector. The upstream holds the key to Malaysia’s rare-earth success, ensuring secure supply, investor confidence, and sustainable growth aligned with both national priorities and global expectations.

Lim Wei Hung is an executive director and the chief operating officer of Southern Alliance Mining Ltd.