The “black box” strategy: China’s opacity signaling game in rare earths (REES)

Abstract Rare earth elements (rees) are abundant in the Earth’s crust but difficult to access technologically. This creates a strategic imbalance that China has exploited not just through dominance in production but also by maintaining deliberate opacity. This paper introduces a dynamic signaling model in which nondisclosure of quotas, patents, and regulations serves as a recurring tactic that increases uncertainty, prompts cautious hedging, and results in unpredictable timelines for diversification among rival countries. Static costly-signaling models cannot fully describe this ongoing process; instead, pooling equilibria based on nondisclosure prevail, supported by super-modular effects through various layers of opacity. Monte Carlo simulations show that opacity can halve the likelihood of reaching resilience within 15 years and broaden the range of possible diversification timelines, shifting expected completion times by more than 4 years. Policy scenarios suggest that transparent procedures are most effective in enhancing resilience, while excessive opacity can backfire by causing panic-driven diversification.