Ambition Without Alignment

Managing Malaysia’s Rare Earth Value Chain

Tricia Yeoh

• Publisher: ISEAS Publishing
• Year: 2026
• Topic: Economics
• eBook ISBN:
  9789815361605
• Subtopic: Economic Theory
• Index: Economics

In the escalating US-China trade war and projected increased demand for critical minerals, deposits of rare earth elements (REE)—highly essential in a range of manufacturing, defence and electronic items—have become highly sought after. According to Malaysia's Mineral and Geoscience Department (JMG), the country has identified as much as 16.1 million metric tonnes of non-radioactive REEs across several states, although this will need to be independently verified. Under Malaysia's Federal Constitution 1957, the federal government has jurisdiction over the development of mineral resources, import and export policy, regulation of labour and safety in mines, the direction of strategic industrial development, selected operating licences, and radioactive and waste management, while state governments have jurisdiction over land, forests, and exploration permits and licences. The implementation of mining regulations and environmental compliance, however, requires the co-operation of both federal and state governments. Malaysia's federal government has banned the export of raw rare earths, intending to develop a fully integrated supply chain by attracting investments and partnerships, especially in the more valuable midstream and downstream sectors. Legal and institutional frameworks have, however, led to a somewhat fragmented policy outcome since authority over land resources, regulations and industrial strategy are split. While coordination exists, the decisions of some state governments do not align with federal policies—for instance, negotiating rare earth partnerships with external investors separately from the federal government—while illegal mining persists, which is environmentally damaging. States are also permitted to set their own royalty rates for rare earth mining. The two states with the highest percentage of rare earth deposits are Terengganu and Kelantan, both northeastern Peninsular Malaysia states that also happen to be controlled by a party in the national opposition, the Islamic Party of Malaysia (PAS). The four PAS-led states, including Kedah and Perlis, have expressed displeasure at centralizing the regulation of rare earths, noting the need for consultation, fairness and transparency. Opposition-controlled states have had a history of being discriminated against by the federal government over resource and fiscal distribution. For Malaysia to achieve its lofty ambitions and benefit financially from its rare earth deposits, and doing so while minimizing adverse environmental and social effects, it will need a comprehensive strategy in which all stakeholders, chiefly the federal and state governments, are in agreement.

Table of contents

• Foreword
• Executive Summary
• Ambition Without Alignment: Managing Malaysia’s Rare Earth Value Chain
• References
• APPENDIX – Table 5: Key Agencies Relevant to the REE Industry in Malaysia