China-Malaysia rare earths talks stir geopolitical power play in Southeast Asia

KUALA LUMPUR/BEIJING: China and Malaysia have begun early-stage talks on a potential joint venture to build a rare earths processing facility in Malaysia — a move that could mark a major shift in Beijing’s long-standing policy of tightly guarding its critical technology.

According to sources familiar with the matter, Malaysia’s sovereign wealth fund, Khazanah Nasional, is expected to team up with a Chinese state-owned enterprise on the project. If the deal goes ahead, it would be the first time China has allowed its rare earths processing technology to be used abroad — a significant departure from its strict export ban on such know-how.

In return, Beijing would gain access to Malaysia’s substantial, yet largely untapped, rare earth reserves, estimated at around 16.1 million metric tonnes. It’s a strategic trade-off technology for resources.

The proposed facility would also serve another purpose — countering the dominance of Australian firm Lynas Rare Earths, which already runs a major processing plant in Malaysia’s central state of Pahang.

“It’s still early days,” said Hisham Hamdan, Chief Investment Officer at Khazanah, who declined to confirm specific talks but acknowledged that rare earths are “among the sectors under government review.”

Despite the deal’s strategic appeal, there are still significant hurdles to clear.

Malaysia has prohibited the exportation of unrefined rare earths to guarantee that more value is generated internally. Only one pilot project has been approved so far, intended to help shape future policy on licensing and environmental safeguards.

As global manufacturers scramble to lock in stable supplies of rare earths — used in everything from electric vehicles to smartphones to advanced weapons systems — Malaysia is suddenly emerging as a key player in the race.

If the projected China-Malaysia facility proceeds, it would process both light and heavy rare earth elements, placing the country side by side with both Chinese and non-Chinese processing capabilities.

Such a move would not only diversify global supply chains but also give Malaysia new leverage in the fast-growing clean tech and electronics industries.

China’s obvious disposition to share its rare earths capabilities and expertise may also indicate changing geopolitical and economic priorities. In August, Malaysia’s Natural Resources Minister Johari Abdul Ghani confirmed that China had offered technical support. However, he emphasised that President Xi Jinping prefers partnerships to be limited to state-linked companies, to protect China’s proprietary technologies.

While the discussions are still in early stages, a successful agreement could be transformative — not just for Malaysia, but for the entire rare earths ecosystem.