China controls much of the world’s refined rare earth supply, but determining whether its pricing practices cross into manipulation requires a closer look at how prices are formed.
Paper: Manipulation in the Rare Earth Market? AI-generated abstract conceptual image created using ChatGPT/OpenAI
A recent research paper on SSRN examines whether China’s dominance of the rare earth industry constitutes market manipulation or reflects its industrial policies and control over production. Combining economic analysis, legal rules, and historical price data, the study separates deliberate price distortion from the exercise of market power.
Understanding Market Manipulation in the Rare Earth Industry
Rare earth elements (REEs) play a crucial role in advanced technologies, including electric vehicles, wind turbines, electronics, defense, and aerospace systems. Neodymium and praseodymium enable the production of high-performance permanent magnets, while dysprosium and terbium support applications that require specialized magnetic properties.
Several countries possess rare earth deposits, but China accounts for about 90% of global refined rare earth production.
Decades of investment, processing expertise, industrial consolidation, and government support have helped China establish this dominant position. Its market influence has raised concerns about whether competing producers can remain financially viable. Mining projects outside China often attract investment when prices rise, then struggle to remain profitable when prices fall.
Critics argue that China may deliberately increase supply to depress prices, weaken foreign competitors, and discourage new investment. Price declines alone do not establish market manipulation. The paper also says China kept investing in rare earth capabilities while other countries shifted parts of the supply chain offshore.
The study asks whether China’s rare earth market practices meet the paper’s proposed economic definition of manipulation. It addresses a research gap in the literature that largely examines private traders in regulated financial markets.
The authors note that no single definition of market manipulation is settled in law and economics. China’s rare earth industry combines state influence over production, industrial policy, and ownership interests in pricing infrastructure. The paper uses these distinctions to separate deliberate manipulation from subsidies, production controls, industrial policy, and the exercise of market power.
Assessing Market Conduct Through Economic and Price Analysis
The researchers developed an analytical structure that combines legal precedent, financial economics, industrial policy, and historical market data. It separates violations of existing laws from practices that meet the paper’s economic definition of market manipulation.
The legal analysis asks whether international rules prohibit particular market practices, while the economic analysis asks whether those practices artificially distort prices through the price discovery process.
The authors identify a separate precondition and three dimensions for manipulation: artificiality, intent, and gain. Artificiality occurs when market prices diverge from fundamental value. Intent requires evidence that an actor deliberately creates this divergence, while gain refers to the economic or strategic advantage sought.
Before assessing those three dimensions, the conduct must influence prices through a price discovery mechanism, the process that turns transactions or market assessments into a reference price, rather than simply changing production costs, supply levels, or individual transaction terms.
The study applies this test to China’s export and production quotas, industry consolidation, technology restrictions, and ownership of pricing infrastructure. It also examines these practices under World Trade Organization (WTO) rules and relevant trade and competition rules.
Researchers established two price thresholds to investigate allegations of market flooding. The cost threshold draws on reported production costs from Molycorp and Lynas Rare Earths, using a blended rare earth oxide cost series rather than an NdPr-specific cost. The entry threshold represents the price needed to justify new investment.
The authors anchor that threshold to the US government’s 2025 agreement with MP Materials, which included a 10-year price floor of US$110 per kilogram for neodymium-praseodymium oxide. They compare these benchmarks with historical prices and Lynas’s average selling prices, including the 2010–2011 and 2021–2022 market cycles.
Price Patterns, Industrial Policy, and Market Vulnerability
The analysis indicates that China’s major rare earth market practices do not meet the study’s proposed definition of market manipulation.
Export restrictions, production quotas, industry consolidation, and technology controls influence supply, industry structure, production costs, or competitors’ capabilities. The researchers classify these measures as exercises of market power or industrial policy because the evidence does not demonstrate artificial price distortion through the price discovery mechanism.
China’s export restrictions illustrate this distinction. In February 2011, the gap between domestic and export neodymium oxide prices peaked at 176%. Following a WTO ruling against the restrictions, the median price difference fell to 3.6% in 2015. The researchers conclude that the restrictions discriminated against foreign buyers and violated international trade obligations. That finding does not establish market manipulation.
China’s industry consolidation concentrates quota enforcement and pricing power; production quotas manage supply; and technology restrictions limit competitors’ access to processing expertise and manufacturing capabilities.
China Northern Rare Earth holds a controlling stake of about 40% in the Baotou Rare Earth Products Exchange (BREPE), while other price reporting agencies rely on Chinese producer data and opaque methodologies. This ownership structure creates a vulnerability in price discovery.
The paper argues that without an independent price, artificiality cannot be tested, so ownership alone does not establish manipulation.
The price analysis also challenges claims of below-cost market flooding. Between 2013 and 2020, neodymium-praseodymium oxide prices remained above the paper’s estimated blended cost threshold and below the threshold needed to encourage new investment. This pattern is consistent with limit pricing, which can discourage competitors from expanding capacity without forcing existing producers out of the market.
Lynas operated near break-even during much of this period. Prices exceeded the entry threshold in 2011 and 2021–2022, coinciding with increased investment in non-Chinese production.
The authors warn that the price series comes from Chinese price reporting agencies, creating a methodological problem because the data may itself be influenced by the conduct under investigation. The model cannot distinguish a genuine limit-pricing pattern from one partly produced by compromised price reporting.
The result counts against the flooding claim, yet it does not show that the observed price band is a market outcome or that it reflects fundamental value.
Policy Implications and Market Vulnerabilities
Under the authors' proposed test, the study gives market manipulation a narrow meaning and cautions against using the term as a broad label for aggressive or strategic market behavior.
China’s dominance in rare earth production, industrial policy, and technology restrictions creates significant challenges for foreign competitors. The researchers argue that policymakers should assess these practices under trade and competition law, where applicable, rather than automatically classifying them as manipulation.
The study describes limits on enforcement through international trade rules. A WTO ruling prompted China to remove its export restrictions in 2015, but existing mechanisms still struggle to address its production controls, industry consolidation, and technology restrictions. Weaknesses in the WTO dispute settlement system further restrict efforts to challenge these practices.
Countries seeking to diversify critical mineral supply chains could benefit from independent, transaction-based price discovery outside China.
The authors say such pricing would let reported prices be tested against an independent signal and help external investors assess the risk of committing capital to competing supply.
The researchers also suggest that lower rare earth prices could benefit downstream Chinese industries, including electric vehicle manufacturers. They propose one unproven mechanism: low-cost domestic transfers reported as market activity could make supply appear larger and average prices lower, discouraging foreign entry.
They stress that this is a theoretical proposition. If established, it could fall on the manipulation side of the authors’ test.
The paper proposes a test to distinguish market manipulation from industrial policy and market power. Independent transaction-based pricing outside China would provide an external benchmark for testing whether reported prices diverge from fundamental value.
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