The spot inspections that China started last week over the production of rare earth metals in the country will likely affect global supply quotas next year.

On Monday, China's Ministry of Industry and Information Technology (MIIT) disclosed in a statement it had started conducting spot visits to three to five companies in in a number of provinces around China. The checkups, which began on Nov. 11 and will run through Nov. 25, aim to combat illegal exploration, production and exports of rare earth metals.

The spot inspections come after China, not only the world's second-largest economy but also the world's biggest supplier of rare earth minerals, implemented the issuance of specialized invoices for designated rare earth producers to curb the rampant illegal production of rare earths in the country. The specialized invoices took effect early November.

An MIIT official told The Wall Street Journal the examinations will not affect present supply, but may influence working plan and quotas for 2012.

"At the end of the year, Beijing wants to know how these regulations have worked, and the new round of inspection is like a summing up and preparation for next year's work," the government official said.

"They also want to show that regulating the industry will [continue]."

Composed of 17 elements, rare earth metals are widely used in manufacturing of batteries of hybrid vehicles, computers, digital cameras, televisions, smartphones, in long-lasting light bulbs and serving as critical magnets in guided missiles.

China controls 95 per cent of the rare earth metals market, holding more than 30 per cent of total world reserves. Nearly all the world's processing facilities are found in China. But two years ago, China started slashing export quotas as it closed some of its rare earth processors due to environmental concerns, sending prices to surge.

The inspections, jointly conducted by MIIT and the Ministry of Land Resources of China, will require local customs departments submitting pertinent information on steps taken to combat rare-earth smuggling in their respective jurisdictions.

China has set a production ceiling of 93,000 tonnes for this year. Its biggest rare earth minerals producer, Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co. was given a production quota of 50,000 tonnes for 2011, while 5,000 tonnes was assigned to rival China Minmetals Corp.

Researchers from the U.S. Geological Survey had forecast demand for rare earth metals will exceed the available world supply until at least 2015.

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