China, in a bid to regulate its disorderly rare earths industry, has issued a production limit guideline for its producers.

Based on the new rule issued by the Ministry of Industry and Information Technology (MIIT), the current production capacity will be slashed by as much as 20 per cent. The new rule was a first for China's rare earths industry.

The new rules further asserted that a rare earths mining company's annual production capacity should be 20,000 tonnes of rare earths oxides, while for a rare earths smelting company, the minimum annual production capacity is 5,000 tonnes.

Their fixed-asset investment must also account for at least 20 per cent of total investment, according to the new rule.

The new rule basically aims to push forward the upgrading of China's rare earths industry as well as regulate production, all in accordance in its desire to protect the country's rare earth resources and the environment, the MIIT said. China's rare earths sector has produced a number of illegal mining firms, it being highly fragmented and full of small operations. In a white paper issued by the State Council in June, the volume of exports shipped through illegal means was 20 per cent bigger than those released through official channels in 2011.

Also included in the list of new rules were minimum yearly extraction thresholds for specific rare earths. Mining single elements were likewise prohibited.

Besides weeding out substandard companies, the merger and recombination of rare earth enterprises within the industry will continue, online news portal China.org.cn reported.

"China is the world's largest rare earth producer and exporter, providing more than 90 percent of the global demand, so reducing the number of domestic rare earth companies is good for fixing prices," China.org.cn quoted Lin Boqiang, director of the China Energy Economic Research Center at Xiamen University, as saying.