Vietnam, Rare Earths, and the Evolving China Plus One Strategy – The Diplomat

Over the past few years, China Plus One has reshaped global production, helping Vietnam emerge as an important manufacturing base. China Plus One involves companies reducing their excessive dependence on a single production base (i.e., China) by adding capacity elsewhere, which many have already done. However, the next stage of this strategy is likely to be more complicated. Export controls and economic security concerns are exposing vulnerabilities further upstream, particularly in industries that depend on critical minerals. This has demonstrated that even if a company can diversify where it manufactures, it may remain dependent on concentrated supplies of the materials, components, and processing capabilities necessary for that production.

Vietnam illustrates this challenge particularly well. China Plus One has brought major investments and increasingly sophisticated manufacturing activities to the country. Amkor Technology, for example, has invested $1.6 billion in a semiconductor assembly, testing, and packaging facility in Bac Ninh province outside Hanoi. Such investments have deepened Vietnam’s links to technologically intensive global supply chains and have made the security of critical inputs increasingly relevant to the country’s economy.

Among the most important of these inputs are rare earth elements. China remains dominant across the rare-earth value chain, accounting for more than 90 percent of global refined output and permanent-magnet production, according to the International Energy Agency. China’s export controls have made this dependence more visible, and highlighted how diversifying the location of factories does not necessarily involve the diversification of the supply chains supporting them. A product assembled in Vietnam may still depend on rare-earth materials, magnets, or other critical inputs processed in China.

If the first phase of China Plus One was largely about finding an additional production base outside China, the next is about strengthening the resilience of those production bases, including via access to critical materials, processing capacity, and strategic technologies.

Vietnam is an interesting example, given its own abundant rare earth deposits. According to the latest U.S. Geological Survey data, the country is estimated to hold around 3.5 million tonnes of rare-earth reserves, a substantial resource base albeit well short of the reserves reported for countries such as China and Australia. While Vietnam is not unique in having significant rare-earth resources – Australia, Brazil and Canada, among others, are also developing alternative rare-earth supply chains – what makes it potentially notable is the combination of these resources with an established low-cost export-oriented manufacturing base. In recent years, the country has developed electronics, automotive and other industries that use components and materials linked to rare-earth supply chains. If Vietnam is able to improve its processing and refining capacity, it could potentially connect its upstream resources with manufacturing activities already integrated into global production networks.

That potential should not be overstated, however. Vietnam’s rare-earth industry remains in its infancy; the country has limited refining capacity, and existing facilities remain concentrated in relatively basic stages of processing. Vietnam Rare Earths operates the country’s only light rare-earth refining facility in Ha Nam province, with an annual capacity of just 5,000 tonnes. Vietnam still lacks the scale of separation and downstream capabilities required for a fully integrated supply chain.

The value of these materials depends on the ability to mine, separate, refine and transform them into inputs for advanced manufacturing. Vietnam’s policy is beginning to address this gap. An amendment to the Law on Geology and Minerals passed in December 2025 classifies rare earths as a “special strategic” mineral and places their exploration, mining, and processing under tighter state control. It also prohibits the export of raw rare-earth materials and places greater emphasis on domestic processing and higher-value products.

This is only partly a reaction to China’s latest export controls. Vietnam and Japan began cooperating on rare-earth development more than a decade ago. In 2010, the two countries agreed to cooperate on rare-earth exploration, mining and processing, including technology transfer and human-resource development, following the vulnerabilities exposed by the 2010 China-Japan rare-earth dispute. More recently, during Japanese Prime Minister Sanae Takaichi’s visit to Vietnam in May, rare-earth development and supply-chain cooperation were again highlighted as strategically important to Japan’s economic security.

Recent corporate investment shows how Vietnam’s manufacturing and critical-mineral stories are beginning to intersect. South Korea’s Star Group Industrial operates a magnet plant in Quang Nam Province that was developed with an investment of $80 million and has sought alternative rare-earth supplies from Vietnam and Australia. Chinese magnet producer Baotou INST Magnetic, which was added to Apple’s supplier list in 2021, also expanded into Vietnam in 2023 in response to pressure from its customers, who pushed it to diversify production beyond China.

These examples show that supply-chain diversification is starting to move beyond manufacturing. Magnet manufacturers have an incentive to locate closer to electronics and automotive companies already operating in Vietnam, while Vietnam’s existing manufacturing base creates potential downstream demand. The connection, however, remains incomplete, due to the aforementioned limitations in supplying processed rare-earth minerals to these companies.

Vietnam’s broader industrial policy points in a similar direction. Its supporting-industry development program for 2026–2035 seeks to strengthen domestic production, increase localization, and deepen the participation of Vietnamese enterprises in global supply chains. The government aims to raise average localization rates in key industries to 40–45 percent by 2030.

Together, the mineral law and the supporting-industry program reflect Vietnam’s broader ambition to capture more value from the country’s raw materials. It will not be easy. China’s dominance in rare earths has been built through decades of investment in processing technologies, industrial infrastructure, downstream manufacturing, and integrated supply chains. Vietnam’s current capabilities remain far more limited, particularly in separation, refining, and downstream production. The challenge is whether greater diversification by foreign companies can gradually expand the country’s own rare-earth processing and manufacturing capabilities.

The China Plus One trend has helped expand Vietnam’s manufacturing base, attract foreign investment and integrate it more deeply into global production networks. It has also created a growing base of electronics, automotive, and other manufacturing activities that depend on critical inputs such as rare-earth magnets. As companies look to diversify those upstream supplies, Vietnam’s rare-earth resources could become more relevant to the country’s position in global supply chains. Whether it can build the capacity to extract and process these materials will help determine how far Vietnam’s rare-earth resources can contribute to the next stage of China Plus One.