Malaysian Minister of Natural Resources and Environmental Sustainability Nik Nazmi once publicly admitted: "Without China's rare earth technology, Malaysia's rare earth industry simply cannot develop." This statement reveals the practical difficulties facing Malaysia's rare earth industry.

In 2023 alone, Malaysia's rare earth supply to the world outside China already accounted for a significant proportion, but all of this relies on foreign technology. As ASEAN explores regional cooperation in rare earths, can Malaysia truly become a new growth point for rare earths in Asia?

Malaysia's Rare Earth Wealth and Limitations

Malaysia's rare earth resource potential should not be underestimated. According to official statistics, Malaysia possesses approximately 16.2 million to 18.18 million mt of rare earth resources, with a potential economic value as high as $175 billion, equivalent to 12% of the country's GDP. This vast resource base places Malaysia in an important position in the global ranking of rare earth reserves. Malaysia's rare earth resources are not only abundant in reserves but also relatively complete in variety. According to foreign media reports, Malaysia's underground contains all 17 rare earth elements, a diversity that is relatively rare globally. The resources are mainly distributed in Pahang, Perak, and the northern states of Kedah, Kelantan, and Terengganu. Despite abundant resources, Malaysia's rare earth mining volume is relatively limited. In 2023 and 2024, Malaysia mined 310 mt and 130 mt of rare earths respectively, a figure that stands in stark contrast to its vast reserves. The Malaysian government has recognized the economic limitations of simply exporting raw ore. In 2023, Malaysia announced a comprehensive ban on the export of rare earth raw ore, aiming to force investors to establish rare earth processing and manufacturing plants in Malaysia, thereby retaining more value within the country.

Geopolitical Game: Malaysia's Opportunity Under China-US Competition

The competition between China and the US over critical minerals has created a historic opportunity for Malaysia. The US is vigorously promoting the "de-sinicization" of the rare earth supply chain, while China is maintaining its dominance in the rare earth industry. Against this backdrop, Malaysia has become an object of competition for both sides. In recent years, the US has reduced some tariffs on Malaysian rare earth products while actively courting Malaysia to join its constructed "de-sinicized" rare earth supply chain. This external pressure presents complex challenges for the development of Malaysia's rare earth industry. Malaysia has adopted a balanced diplomatic strategy. Malaysian Prime Minister Anwar Ibrahim has repeatedly expressed opposition to taking sides, emphasizing that "attempting to contain China's rise will only increase China's dissatisfaction." This balanced strategy aims to maximize Malaysia's national interests. In terms of specific cooperation, Malaysia has adopted a multilateral engagement strategy. Apart from collaborating with Australia's Lynas Corporation to establish the largest light rare earth processing plant outside China in Pahang, Malaysia also partnered with Chinese companies to launch a pilot mine project in Perak, while continuously seeking further cooperation with China throughout the entire period from 2023 to 2025.

Industry Chain Construction: The Arduous Journey from Mine to Magnet

Malaysia's entire industry chain strategy for the rare earth sector faces severe challenges. In the upstream mining segment, legality coexists with illegal extraction. Currently, legal mineral development in Malaysia is limited, but illegal mining activities occur frequently in other regions, with opaque regulatory information. The midstream processing segment is deeply mired in radiation controversies. The plant operated by Australia's Lynas Corporation in Malaysia has triggered ongoing social protests due to radioactive waste disposal issues, and the renewal of its operating permit in March 2026 faces significant social pressure. This problem highlights Malaysia's shortcomings in environmental regulation. The downstream manufacturing sector is dominated by foreign capital. Multinational corporations from Japan and Switzerland monopolize rare earth magnet production, with the technological participation of local Malaysian enterprises accounting for less than 20%. This indicates Malaysia's clearly insufficient involvement in the segment of the industry chain with the highest added value.

Technological Bottlenecks: The Greatest Obstacle to Malaysia's Rare Earth Development

Technological deficiencies are the core issue constraining the development of Malaysia's entire rare earth industry chain. Malaysia lacks core technologies in rare earth mining, processing, and magnet manufacturing, with commercialization capabilities lagging behind international competitors. China, as the only country globally that masters mature production technologies for all 17 rare earth elements, holds an absolute leading advantage in rare earth extraction and separation process technologies, as well as rare earth metal and alloy material production technologies. China possesses 469,000 rare earth-related patents and accounts for over 60% of global production. Malaysia has attempted to collaborate with other countries to break through technological bottlenecks, but the results so far have not been ideal, falling far short of the level commonly used in industry. Faced with technological challenges, Malaysia is actively seeking international cooperation. The "Rare Earth Technology Innovation Fund" established by the Malaysian government has attracted 23 multinational corporations, including industry giants such as Germany's Siemens and Japan's TDK.

 Strengths and Challenges: The Dual Landscape of Malaysia's Rare Earth Industry

Malaysia possesses multiple advantages for developing its rare earth industry.

It has a superior geographical location, situated in the core area of Southeast Asia, serving as both a key Pacific shipping route and an Indian Ocean trade passage, while also controlling the strategically vital Malacca Strait, a crucial global maritime channel. The policy support system is relatively well-developed. Malaysia has signed 15 free trade agreements, covering 74.5% of the global economy. Particularly, the Regional Comprehensive Economic Partnership (RCEP) allows Malaysian rare earth processed products to enjoy zero-tariff treatment in countries such as Japan, South Korea, and Australia. The business environment is relatively friendly. Malaysia leads Southeast Asian countries in indicators such as transparency in mining rights approval and cross-border trade facilitation. The registration process for rare earth processing enterprises has been fully digitized, and restrictions on foreign shareholding ratios have been completely lifted.

Malaysia's Rare Earth Industry Development Faces Multiple Challenges

Geopolitical risks are the most prominent challenge. The pressure exerted by the US on Malaysia cannot be ignored. If Malaysia chooses to deepen cooperation with China, it may face the risk of being excluded from the markets of the US and its allies. Environmental, social, and governance (ESG) compliance pressures are immense. The radiation controversy at the Lynas plant in Australia is just the tip of the iceberg; how to achieve green mining is an issue Malaysia must confront. Talent and technology shortcomings are evident. Although the Malaysian government launched the "MyTalent" program, offering work visas of up to 10 years for foreign experts in the rare earth field, high-end technical talent remains scarce.

Future Path: ASEAN Cooperation and Chinese Technology Transfer

ASEAN rare earth regional cooperation provides new opportunities for Malaysia. The ASEAN Mineral Development Vision Declaration, issued by the ASEAN Minerals Committee, outlines the ambition for ASEAN to become a major destination for mineral investment. ASEAN cooperation makes technology sharing and the promotion of best practices possible. Malaysia can leverage regional cooperation platforms to learn from the experiences of other member states while contributing its own accumulated expertise in rare earth processing. For China, Malaysia's rare earth strategy presents both opportunities and challenges. On one hand, cooperation with Malaysia helps China maintain influence in the global rare earth market and break through the US's "small yard, high fence" strategy. In the revised "Catalogue of Technologies Prohibited and Restricted from Export" in December 2023, China explicitly listed "rare earth extraction, processing, and utilization technologies" in the prohibited export section. This increases the difficulty for Malaysia to access advanced Chinese rare earth technology. Additionally, the export control policies issued by the Ministry of Commerce in October 2025 imposed further restrictions on technology, further increasing the difficulty for Malaysia to obtain rare earth technology from China. However, earlier the Malaysian government also engaged in renewed communication with China, and both sides remain confident about cooperation.