Under the new rules, mixed-type rare earth mines must have a minimum annual production capacity of 20,000 metric tons and smelting companies must ensure an annual output of at least 2,000 tons, says a statement Monday from the Ministry of Industry and Information Technology.
While China has about one-third of global rare earth deposits -- a collective name for 17 metals used in the electronics, defense and renewable energy industries -- it produces about 95 percent of the world's supply of rare earths.
Under the government's new rules, as many as one-third of the country's 23 rare earths mines and about half of the 99 smelting companies wouldn't meet the new criteria, says Jia Yinsong, director of the ministry's rare earths office, China Daily newspaper reports.
That could mean that up to 20 percent of the country's rare earths capacity will be eliminated, Jia said.
The move marks the first time Beijing has designated thresholds for rare earth producers in terms of production scale.
Previously, China announced export quotas for rare earth minerals maintaining the restraints and reductions in mining are necessary to protect the country's natural resources and environment.
In the first half of this year, rare earths that were legally exported from China decreased 42.7 percent year-on-year.
The World Trade Organization on July 24 said it had set up a panel to examine China's rare earth export policies, following complaints by the United States, the European Union and Japan that Beijing's rare earths export restrictions violate trade rules.
China says the new rare earth production rules announced this week will protect the environment and promote industrial restructuring.
Yet the new rules appear to focus less on environmental protection standards, China.org reports.
A 2010 Chinese government draft to regulate rare earths, for example, reads: "It is prohibited to exploit monazite ore and other rare earth ores, which are radioactive and cause severe pollution."
But the newly released standard states: "It is prohibited to exploit monazite ore. To those rare earth ores with radioactive elements, the relevant radiation protection and prevention measures should be taken."
Lin Boqiang, director of the China Energy Economic Research Center at Xiamen University told China.org that reducing the number of domestic rare earth companies, as will happen under the new rules, is "good for fixing prices."
He said the government is more likely to support three or four larger rare earth enterprises, so it can control the international market price in the future.