Official statistics from the MIIT showed that China's rare earth output account for nearly 95 percent of the global total, but its reserves only account for about one third of the total.

Since rare earth elements are found dispersed in low concentrations and costly to extract, the mining methods are devastating to nature and the damage is irreversible.

A traditional mining process will eradicate trees and grass first and peel off topsoil. What's more, wastewater from the chemical reaction contains ammonia nitrogen and heavy metals, which are extremely harmful to people's health and the environment.

China has been paying a hard price exploiting its rare earth resources. Jiangxi Province, rich in rare earth minerals, earned 32.9 billion yuan ($4.89 billion) from this industry last year, but it has to spend 38 billion yuan ($6.03 billion) to tackle the environmental pollution in Ganzhou, a city in the province.

Large groups of unauthorized miners are making the pollution problem worse. The state-run companies who are under tough environmental regulation only take up a small part of the rare earth productivity, but many small, unauthorized groups are off the limit.

Illegal mining operations and smuggling also allowed more resources to enter the global market. This partly explained why China, as the world's predominant rare earth producer, does not have the pricing right even after paying extremely high cost.

Liu Shuchen, a researcher at the Information Center of the Ministry of Land and Resources, said that for more than a decade, the price of rare earth has been going downward, a sharp contrast to the climbing prices of resource products such as iron ore and coal. In 2009, the export price of China's rare earth was only about 60 percent of the price in the 1990s.

Not a panacea

Even though the association was founded to promote international trade dispute settlement, the chance of winning the WTO complaint was even considered slim for the association itself.

"We might lose the WTO complaint," said Gan Yong, president of the association, at the launching ceremony.

"China's export quota control aims to protect its own industry and environment, which was misinterpreted as intervening in the market by Western countries," Du said.

What has happened in China's steelmaking industry did not give analysts too much confidence in the rare earth industry.

China Iron and Steel Association has made various efforts to provide a unified voice in international iron ore pricing negotiation in the past few years, but China still has to face rising prices despite being the biggest iron ore consumer in the world.

"The problem in China's steel industry is that the members of the iron and steel association failed to provide a unified voice because of different interest concerns," Du said. He believed that the rare earth industry association may face the same problem.

In addition, consolidation efforts may not pay off as expected.

"Consolidating the industry is far from just setting up an association," said Zhang Anwen, Deputy Secretary General of the Chinese Society of Rare Earths and an initiator of the association. "It requires concerted efforts from all parties concerned."

"It will take a long time to achieve the goal of forming a rare earth industry structure led by major companies and consolidating more than 80 percent of the country's rare earth mining assets into three largest rare earth ion producers in south China," Gan said.

Rare earth producers in south China are similar in size and competitiveness, and local governments are loath to support cross-province mergers, said Zhang Anwen. So it is much more difficult to push forward consolidation in south China and almost impossible to form two to three industry behemoths as planned by the MIIT.

"The role of the association should be played in coordinating the interests of various rare earth enterprises, avoiding vicious competition and forming the unified stand on export pricing, rather than pushing forward consolidation as the government's will," said Bai Ming, Associate Director of the Department of International Market Studies at the Chinese Academy of International Trade and Economic Cooperation.

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