The government will impose stricter mining policies and environmental standards for rare earths and set "reasonable" annual production and export quotas to further regulate the crucial sector, the State Council said on Wednesday.

Rare earth metals are comprised of 17 minerals and some are used in high-tech industries ranging from hybrid cars to missiles. China produces more than 95 percent of the world's total supply although it has only about 30 percent of global reserves.

Zhang Anwen, deputy secretary-general of the Chinese Society of Rare Earths, said the measures aim to protect the environment for the industry's sustainable development.

Rare earths are usually discovered in poor regions where the ecological environment is fragile. China has implemented industry guidelines to combat illegal mining and cut export quotas since 2006.

In 2010, China reduced export quotas by 30-40 percent, according to the Ministry of Commerce, sparking complaints from importing countries such as Japan and the United States.

Some countries have threatened to take the case to the World Trade Organization.

In December, the ministry publicized this year's first batch of export quotas, 14,446 tons - an 11-percent decrease from the corresponding figure for last year.

In the same month, the Ministry of Environmental Protection approved new industry standards for the sector to reduce pollution.

The State Council also said on Wednesday that the country will improve the industry's management and speed up its consolidation, adding that would involve mergers and restructuring.

Industry sources said the government wants to reduce the number of rare earth mines nationwide from 123 to less than 10, and cut the number of processing plants from 73 to 20.

Premier Wen Jiabao told the State Council meeting that the industry had been harmed by illegal mining and "chaotic" exports.

"There are still problems with the development of the rare earths sector ... and considerable chaos in export orderliness. These are seriously affecting the healthy development of the sector," he said, according to an account of the meeting published on the government website.

The State Council said it would take "about 5 years" to "establish a sustainable and healthy setting for the industry with reasonable mining, orderly production, efficient usage, advanced technology and intensive development".

An industry association is expected to be launched in May, sources said.

Wang Caifeng, a former official of the Ministry of Industry and Information Technology, who is setting up the group, said the association will act like China Iron and Steel Association, to assist companies in exports and international cooperation and to lead price talks with foreign buyers.

Currently, there are six ministry-level agencies overseeing the sector.

Niu Jingkao, deputy secretary-general of the Chinese Society of Rare Earths, said the measures will help raise prices for exports, which many experts believe have long been undervalued.