KUALA LUMPUR/BEIJING, China and Malaysia have begun preliminary discussions on setting up a rare earths processing plant, with sovereign wealth fund Khazanah Nasional likely to partner a Chinese state-owned enterprise to build the refinery, according to people familiar with the matter.
If the venture materialises, it would mark a major policy shift for Beijing, which has long restricted the export of rare earth processing technology to safeguard its dominance of the sector. In return for sharing its know-how, China is seeking access to Malaysia’s largely untapped rare earth deposits, aiming to curb competition from Australian producer Lynas Rare Earths, which operates a processing facility in Pahang, two Malaysian sources said.
All four sources who spoke to Reuters requested anonymity given the sensitivity of the matter. Khazanah Nasional and Malaysia’s ministries of natural resources and trade did not respond to requests for comment. China’s State Council Information Office also did not immediately reply due to the National Day holiday.
A Malaysian source cautioned that the plan faces hurdles, including doubts over whether Malaysia can supply sufficient raw materials for the plant. Two other sources highlighted environmental and regulatory challenges, noting that mining approvals require both federal and state-level clearances. Malaysia has previously ruled out rare earth mining in ecologically sensitive zones such as permanent forest reserves and water catchment areas.
The proposed refinery would be capable of processing both light and heavy rare earths, two Malaysian sources said. These materials are critical for products ranging from smartphones and electric vehicles to clean energy technologies and defence equipment. Heavy rare earths are especially scarce, with some already facing supply shortages.
Malaysia is estimated to hold 16.1 million metric tons of rare earth deposits but lacks the technology to develop them. The country has banned exports of raw rare earths to prevent resource drain, granting only a limited exception in 2022 for a pilot mining project to establish national guidelines.
Australia’s Lynas, the world’s largest rare earth producer outside China, signed an agreement in May with Kelantan state for future supply of mixed rare earth carbonate, signalling efforts to build Malaysia’s role in the industry.
In August, Natural Resources Minister Johari Abdul Ghani said China was ready to offer technical and technological support in rare earth processing, though President Xi Jinping wanted cooperation limited to state-linked firms to safeguard trade secrets. Discussions remain at an early stage, Johari added, but a successful deal would make Malaysia one of the few nations with access to both Chinese and non-Chinese processing technologies.
