Abstract: Rare earth elements are critical raw materials in high-end manufacturing, widely used in national defense, aerospace, electronics, new energy, precision instruments, and other fields. It is known as “industrial gold” and “industrial vitamins”, making them the “treasure trove of new materials in the 21st century” and essential strategic mineral resources. China is a major rare earth resource country, with the largest reserves and production in the world. This paper primarily introduces the current status of China’s rare earth resources and their applications. It highlights the gap between China’s application levels in various sub-fields compared to developed countries like the United States and Japan. Additionally, it analyzes the risks and challenges in industry regulation, development and utilization, green development, and supply chain security. Based on these insights, the following recommendations are proposed to promote the sustainable development of China’s rare earth industry: firstly, improving policies and regulations to ensure sustainable development at the institutional level; secondly, persisting in technological innovation to continuously enhance the capability of rare earth resource development and utilization; thirdly, promoting green development in the rare earth industry to effectively address environmental issues; fourthly, strengthening the management of rare earth resource exports.