It will also, hopefully, save the country's rare earth companies from embarking on a damaging price war, said Liu Zhong, an official with the Ministry of Land and Resources.

"Now that the international market of rare earth is saturated, China should not maintain its rare earth output," said Liu, director of the Supervision Division under the ministry's Managerial Department of Mineral Resource Development.

Boasting lots of uses in such areas as the chemical industry, electronics and communications, rare earth is much sought after around the world. And last year China ranked first in the world both in terms of production and export of the mineral.

The period of new license suspension, said Liu, is linked to the plan to establish two giant rare earth companies, to integrate the country's many scattered, low-efficiency small mining and processing operations.

Preparatory work for establishing these began in mid-March, with the front-runner contenders being Beijing-based Aluminium Corporation of China Ltd and the Baotou Steel & Rare Earth Enterprises Group, located in North China's Inner Mongolia .

While the former will take in major rare earth companies in South China's Guangdong Province, Central China's Hunan Province, and East China's Jiangxi Province, Jiangsu Province and Shanghai Municipality, the latter will seek to integrate some of those existing operations in North China's Inner Mongolia, Northwest China's Gansu Province, Southwest China's Sichuan Province and East China's Shandong Province.

Only those mining firms which have proven to be "competitive, influential and promising" will be incorporated into the two giants. These firms will be granted the bulk of the country's rare earth export quota in the future, according to a related guideline document of the re-organization.

Controls will be imposed on the output of rare earth production by the ministry, just as it has done with tungsten. Through such controls, the ministry has successfully reduced the number of the country's tungsten mines from 243 at the beginning of 2000 to 123 in the middle of 2002, thereby better regulating mining of the mineral.

The suspension of issuing new licenses in respect of rare earth is part of the latest round of shake-ups of the mining industry launched earlier last week.

According to Chang Yugang, director of the Comprehensive Division of the department, this latest move will close all mines in mining prohibited zones close to roads and railways and in scenic spots by late August.

The prohibited zones were earmarked in an earlier order issued by the ministry in its shake-up of mining sector between 2001 and 2002. During that period around 35,000 mines, those which were badly or illegally run, were shut down.

(China Daily March 31, 2003)