In the town of Beitou in China's Jiangxi province, mining for rare earth minerals -- an extraction process that involves highly toxic chemicals -- began 20 years ago.

"That's when the nightmare began: trees were toppled, green hills were studded with holes and toxic chemicals were pumped in, rivers were polluted and not fit for drinking," Liu Shengyuan, a resident of Beitou told Xinhua news agency.

Liu said his rice output fell by more than 40 percent last year and some of his neighbors harvested nothing at all. Because their water is polluted, Beitou residents divert water from towns further out via pipes.

Ganzhou City, a major production base, had during its peak more than 1,000 companies with legal rare earth mining licenses.

"The extraction and processing process were damaging to the environment," said Li Guoqing, director of Ganzhou's mineral resource management authority.

"A green hill could turn into a moonscape within several months."

Rare earth elements are indispensable to a range of green energy and high-tech components such as wind turbines, low-energy light bulbs, batteries for hybrid and electric cars, lasers, fiber-optic cables, cell phones and flat-screen monitors. The elements are also used for military applications, such as missiles.

China produces 97 percent of the world's supply of rare earth minerals, although it has only about 53 percent of the world's rare earth deposits. Former Chinese leader Deng Xiaoping once boasted, "The Middle East has oil, and China has rare earths."

Demand for the 17 rare earth minerals has tripled in the last decade to 120,000 tons.

China continues to raise prices and restrict exports of rare earth elements, since 2005.

In July, the Ministry of Commerce slashed export quotas by 72 percent for the second half of this year. Shipments will be capped at just less than 8,000 metric tons, down from nearly 28,500 tons for the same period in 2009.

China Commerce Minister Chen Deming cited environmental concerns as part of the reason for the reductions.

"Rare earth exports should not threaten environmental protection or national security to promote the domestic economy," Chen said.

But experts say that in controlling the supply of rare earths, China also gains greater control of their processing and use in finished goods, as Beijing seeks to shift its industry from low- to high-value goods that require such minerals.

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