Reuters quoted two Malaysian sources as saying that Beijing was willing to provide processing technology in exchange for access to Malaysia’s 16.1 million metric tonnes of rare earth deposits, seeking to counter competition from Australia’s Lynas Rare Earths which operates a plant in Pahang.

However, the proposed venture faces hurdles. One source said Beijing was uncertain whether Malaysia could provide enough raw material for the plant, while two other sources said Malaysia was concerned about environmental and regulatory issues.

Mining approval in Malaysia requires both federal and state consent, and extraction is banned in sensitive areas such as forest reserves and water catchments.

The refinery, if built, is expected to process both light and heavy rare earth elements critical to industries ranging from electric vehicles and smartphones to defence equipment.

Demand for heavy rare earths in particular has surged amid a global push for clean technology.

Johari Ghani, who is temporarily carrying out the duties of the natural resources and environmental minister, said in August that China had offered technical assistance, but stressed that talks were still at an early stage and no agreement had been reached.

Khazanah and the relevant ministries did not immediately respond to requests for comment, Reuters said.