Domestic rare-earth deposits dropped to 27 million tons by the end of 2009, down from 43 million tons in 1996, Chao Ning, section chief for foreign trade at the Ministry of Commerce, said in October.

Growing concern over the draining of these scarce resources has prompted Chinese authorities to consider establishing strategic reserves of 10 rare metals, including rare earths to stabilize their supply and prices, the Beijing-based China Times said last month.

China also announced last month that it will create 11 state-planned rare-earth mining zones in Jiangxi Province, covering 2,500 square kilometers, with rare-earth reserves estimated at 760,000 tons.

China also placed a quota on the export of rare earths and cut export quotas for the first half of 2011 by 35 percent from the first half of last year, prompting renewed concerns from Japan, the US and Europe.

However, China said it aimed to guarantee a sustainable supply of rare earth and to reduce pollution.

Chen Zhanheng, head of research at the Chinese Society of Rare Earths, told the Global Times that the association should group and regulate China's rare-earth industry.

"It's time for change. Reckless exploitations and exports mean quick money, but the environmental costs are unaffordable," Chen said, adding that the 100 enterprises currently engaged in purifying rare earths are expected to be consolidated into just 20.

"But the establishment of such an association will not bring a solution for all problems. It only serves as a channel to coordinate the industry but has no enforcement power," he said, adding that law enforcement authorities will still be the major body charged with regulating the industry and punishing the violators.

The chairman of the association will be elected in rotation from the leading rare-earth companies, while China Minmetals Corporation and Guangdong Rising Nonferrous Metals Group will select board members, Guangzhou Daily said.

Zhou Bingli, chairman of Inner Mongolia Baotou Steel Rare-Earth (Group), is likely to take up the post first, while the chairman of China Minmetals Corporation, Zhou Zhongshu, is also a candidate.

Neither of the two companies could be reached for comment Monday.