Rare earths keep the modern world running. Electric vehicles, missiles, and high-tech manufacturing all depend on them, and the planet's largest deposit sits at Bayan Obo in China's Inner Mongolia. Japan's reliance on Chinese supply is staggering.
For dysprosium and terbium, the two elements that power EV motors, that dependence approaches 100 percent. Once Beijing tightened export controls, Japan turned to the black market, and a smuggling network that has run for more than 15 years has become tangled up with the Japanese right wing's political ambitions in Inner Mongolia.
A Forum With a Political Edge
Sanae Takaichi is not shy about her intentions. Japan's current prime minister hosted an international forum titled "The History and Prospects of the Southern Mongolia Freedom and Independence Movement" in Tokyo last October, while she still served as president of the Liberal Democratic Party. She took office as prime minister just a month later. Calling China's Inner Mongolia "Southern Mongolia" is a deliberate diplomatic provocation, and it thinly veils Japan's real interest in the region's rare earth wealth.
Takaichi also founded and chairs the Diet's "Parliamentary League for Supporting Southern Mongolia," the only parliamentary group in the world built around that name.
Stolen Ore at the Source
Bayan Obo holds proven reserves of 43 million tonnes of rare earth oxides. For decades, though, the site was mined mainly for iron ore. Vast quantities of rare earths ended up dumped in tailings alongside processing waste, and the slag and sludge scattered around the mining area still contain rare earths today. That regulatory blind spot turned ore theft into the starting point of the entire smuggling chain.
The underground market has its own code language. Mainland journalists who investigated on the ground found that traders use "iron ore" as a cover word while actually dealing in raw rare earth ore. Ore graded at 5 percent sells on the black market for roughly 80 to 100 yuan per tonne. That means 1,000 tonnes of 10 percent-grade ore can be had for less than 100,000 yuan.
The "Gelatou" area on the western edge of the mining zone shows just how organized this theft has become. Dozens of heavy trucks haul away thousands of tonnes of stolen ore there every single night. That ore then moves to nearby small processing plants, where about 15 tonnes of raw material yields about 1 tonne of rare earth concentrate powder. Smelting plants take it from there, refining it into products like rare earth carbonates. The math is brutal: 100 tonnes of raw ore ultimately concentrates down to only 3 to 4 kilograms of high-purity rare earths.
Disguised Exports and Bribed Insiders
Illegal mining is only half the story. Disguising legally purchased rare earths as ordinary goods for export forms the other major smuggling channel.
The disguises are simple but effective. Smuggling rings declare metallic rare earth blocks as "ferroalloy" and powdered rare earths as "talcum powder." They mix real shipments with fake ones, blending, say, 2 tonnes of rare earths into 10 one-tonne bags while filling the rest with ordinary goods, so customs spot checks often miss the contraband entirely. These networks also bribe customs insiders to act as lookouts, warning smugglers to pause shipments whenever enforcement tightens.
One case shows how far this went. Hu Jiayong, head of Zhuhai Haiyou Company, purchased 4,100 tonnes of lanthanum oxide from Inner Mongolia and falsely declared it as "iron oxide red" for export to Japan through Qingdao. The scheme fell apart only because the customs declaration did not match the warehouse manifest, and the case ultimately involved more than 100 million yuan.
Geography did not stop the smugglers either. In 2013, Hohhot customs busted a cross-provincial smuggling operation that ran 3,000 kilometers from Baotou to the Sino-Vietnamese border, moving 130 tonnes of rare earths through Vietnam and on to Japan. Another route ran from Dongguan through Shenzhen's Wenjindu port into Hong Kong, with five trucks a day carrying 2 tonnes each and hundreds of tonnes leaking out every month.
Beijing Tightens the Net
Beijing has fought back hard since last year. In January 2026, the Ministry of Commerce placed seven categories of medium and heavy rare earths under export controls aimed squarely at Japan. By March and April, rare earth exports to Japan had plunged nearly 90 percent, and dysprosium and terbium exports had dropped to zero starting that January.
Enforcement got smarter, too. Authorities rolled out blockchain traceability codes to track legal exports and AI-based image recognition systems to catch disguised declarations. Smuggling cases worth more than 5 million yuan now get prosecuted under national security charges. Last year alone, 12 people were sentenced to death, and authorities seized more than 8 billion yuan in smuggling-related funds.
The Ministry of Commerce also introduced a "long-arm jurisdiction" principle: even rare earths already exported abroad remain subject to Chinese export control law if they contain Chinese-origin components. That single rule slammed shut the loophole of laundering origin through Southeast Asian transshipment.
The Failed Mongolia Detour
Even airlifts could not save Takaichi's plan. Her government reportedly tried routing rare earths through Mongolia, dangling a 38-billion-yen low-interest loan to expand Chinggis Khaan International Airport. But Mongolian President Khurelsukh personally told Chinese Foreign Minister Wang Yi that "friendly relations with China are our top diplomatic priority, and we will not damage China's interests by developing ties with other countries." That assurance cut Japan's Mongolian route off before it could get started.
The net has never been tighter. Export controls, criminal prosecution, and extraterritorial jurisdiction now operate all at once, making it extremely difficult for Japan to secure smuggled rare earths at any real scale. But as long as Japanese industrial demand persists and some are willing to gamble on the black market, this underground contest over strategic resources will not end anytime soon.
Mao Paishou
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