China sets up rare earth materials group

Su Bo, an industry vice-minister, said the Chinese government wanted to phase out small smelters, give bigger companies greater stakes, and improve environmental policies.

"China will continue to clean up the rare earth industry, expand rare earth environmental controls, strengthen environmental checks, and implement stricter rare earth environmental policies," he said.

The international trade dispute centres on Beijing's imposition of export quotas for rare earths and an effective tax rate of 42pc on the exports.

Critics argue that the policies give Chinese companies an unfair competitive advantage by keeping domestic prices far lower than those faced by international companies.

Karel De Gucht, EU Trade Commissioner, said: "China's restrictions on rare earths and other products violate international trade rules and must be removed.

"These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi?tech and 'green' business applications."

China argues that the export controls are justified in order for it to limit environmental damage and conserve its resources. It also highlighted the fact that its rare earth export quota for 2011 was not used up.

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