Abstract: Based on Wind database and China Urban Statistics Yearbook, the paper tests empirically whether there is "resource curse" in China's rare earth industry on enterprise and city level. The results show that "resource curse" does exist in rare earth industry as "short-sighted" rare earth companies expand blindly and hinders TFP growth, coupled with low investment in R&D and low financial leverage. The "resource curse" of rare earth companies with mining rights is more serious; the "resource curse" also exists on city level due to "crowd out" effect which happens in social fixed asset investment, human capital and foreign investment. The exploitation of resources also weakens the urban institution.