When, in 2018, the Trump administration launched the so-called “trade war” against China, the goal was straightforward: to hit Chinese exports, reduce the trade deficit, and bring manufacturing back to the United States.
But Beijing did not respond with a tariff war – it responded with a structural reform of its own economy, turning its most vulnerable industrial sectors into strongholds of state power.
While Washington focused on the short term – tariffs and restrictions – China replied with a long-term strategy: to transform its industrial model into an integrated system of large state-owned groups capable of absorbing external shocks.
It is in this light that the “silent defeat” of the tariffs should be read today.
The underlying idea is simple but radical: to make the sectors targeted by U.S. tariffs no longer isolated market actors, but pillars coordinated by the State.
The most emblematic case is that of rare earths, a group of 17 chemical elements essential for electronics, electric vehicles, wind turbines, and the defense industry.
In December 2021, the government announced the creation of China Rare Earth Group Co., Ltd., a state-owned giant formed through the merger of three state enterprises already operating in the sector: China Minmetals Rare Earth Co., Chinalco Rare Earth & Metals Co., and Ganzhou Rare Earth Group Co.
The new entity, headquartered in Ganzhou (Jiangxi province), now controls about 70% of China’s production of heavy rare earths and represents the cornerstone of a long-term economic and geopolitical strategy.
The three merged enterprises were already formally state-owned, but operated as separate entities, often in competition with each other, with hybrid ownership structures: some were listed on the stock exchange, others had local participations or collaborations with private and foreign companies.
The result was a fragmented production system that, according to Beijing, hindered industrial planning and fostered internal dumping, smuggling, and the loss of technological margins.
The 2021 merger eliminated this fragmentation. With a single entity controlled by the SASAC (State-owned Assets Supervision and Administration Commission), the government effectively nationalized the entire rare earth value chain, integrating extraction, refining, and commercialization under a single authority.
Private capital was consequently restricted.
Before the merger, private capital – both Chinese and foreign – participated only indirectly.
Public companies such as China Minmetals Rare Earth were listed on the Shenzhen Stock Exchange: the State held 60 – 70% of the shares, while the remaining 30–40% was distributed among private investors, funds, and banks.
This reflected the so-called “mixed ownership” model, introduced in China during the 2013–2015 reform to attract private capital without surrendering strategic control.
Investors could receive dividends or speculate on shares, but had no say in corporate decision-making.
Power remained firmly in the hands of public management and, ultimately, the Chinese Communist Party. As a famous slogan of the reform stated:
“Private capital participates, but the State leads.”
Multinational corporations did not hold direct stakes, but collaborated through operational joint ventures, technology supply agreements, or extraction licenses.
However, with the entry into force of the Foreign Investment Law (2020), the rare earth sector was classified as a “sensitive area for national security.”
From that moment onward, any foreign participation became subject to a special authorization regime and, in many cases, was no longer permitted.
Partnerships with foreign companies—particularly Japanese, American, and Australian—were reduced to subordinate commercial relations: Beijing controls supply, while foreign partners are mere buyers or licensees of technology.
In essence, there has been no formal expropriation, but rather a gradual marginalization of foreign capital, rendering it irrelevant in decision-making — a de facto nationalization.
The establishment of China Rare Earth Group Co. was not a rupture, but rather the culmination of a process that began more than a decade earlier.
China realized that control over rare earths is equivalent to a global strategic advantage, comparable to control over energy resources in the twentieth century.
Through a series of mergers, buybacks, and investment restrictions, Beijing has consolidated a fully public, vertically integrated sector.
Today, private capital—domestic or foreign—may only participate in a minor, financial role, while effective control and governance remain entirely in the hands of the State.
This is not an expropriation, but a redefinition of property rights within a system where market mechanisms are subordinated to political and national security objectives.
The beginning of a new phase in Chinese and global capitalism
The case of China Rare Earth Group exemplifies a new phase of Chinese capitalism – no longer oriented toward liberalization, but toward strategic centralization in high -technology sectors.
While the United States promotes productive reshoring and Europe debates “strategic autonomy,” China has already completed its transition to an integrated state-capitalist model, in which industrial planning, public finance, and investment regulation converge into a single geopolitical design.
The birth of China Rare Earth Group Co. therefore does not represent an isolated episode, but a paradigm: the transformation of a sensitive sector from mixed economy to fully state-controlled economy, achieved through sophisticated corporate, legal, and financial mechanisms.
Private capital has not been expelled, but reframed; economic sovereignty is reaffirmed not through expropriation, but through mergers and consolidations.
In 2020, with the entry into force of the Foreign Investment Law, China marked a crucial turning point in its industrial and investment policy.
Formally, the reform was presented as a step toward modernizing the regulatory framework and enhancing the protection of foreign investors.
In reality, behind this apparent openness lies a profound reconfiguration of the relationship between the State, the market, and private capital, aimed at bringing the vital nodes of the national economy – and, by extension, the global economy – back under public control.
Over the past five years, Beijing has progressively extended the logic of state control to a range of other strategic sectors, all crucial to the country’s technological and industrial security:
- Semiconductors and microchips: Following U.S. restrictions on the export of advanced chips, China has accelerated the creation of national champions (such as SMIC and Hua Hong), supported by public funds and direct state planning. Foreign capital is admitted only through technical support partnerships, not in governance.
- Energy and green transition: Major state groups such as State Grid Corporation of China, China National Energy Group, and Sinopec have taken on a dominant role even in renewable energy and battery and hydrogen technologies – sectors that are formally open to investment but, in practice, centrally coordinated.
- Telecommunications and digital infrastructure: With the spread of 5G and quantum networks, the government has imposed proprietary technological standards and full public supervision over network operators. Giants like Huawei and ZTE now operate more as industrial instruments of national technology policy than as autonomous enterprises.
- Pharmaceuticals and biotechnology: The experience of the pandemic prompted China to strengthen its domestic production chain for drugs and vaccines, creating public conglomerates that reduce dependence on foreign suppliers. Foreign joint ventures, once central to the sector, are now in sharp decline.
- Finance and digital platforms: After the Ant Group case, Beijing imposed a new paradigm: fintech platforms and digital giants must operate within state-defined limits. This is not merely a matter of censorship or financial oversight, but of bringing credit power and data governance back under public sovereignty.
