Besides Japan and the ROK, some rare earths products are transported to Hong Kong, a favored depot for smuggling materials out of the mainland, Chen said.

"The shortest waterway from Shenzhen to Hong Kong takes only five minutes, which makes Hong Kong an important transfer hub for legal and illegal business," said Wang Zhi, director of the anti-smuggling bureau in Shenzhen, South China's Guangdong province.

Although strict measures have been taken to crack down on rare earths smuggling, the situation has not improved.

Ma Rongzhang, secretary-general of the China Rare Earth Industry Association, said smuggling of the minerals continued to climb in the first half of the year, when thousands of tons were transported illegally.

He said the booming black market trade will boost illegal rare earths mining and damage China's rare earth policies.

China has adopted a series of measures to protect its rare earths reserves, including strengthening the supervision of the rare earths industry, raising taxes, allocating an export quota and building up the national strategic reserves.

According to the China Customs Statistics Information Center in Hong Kong, China's exports of rare earths from January to September reached a third of this year's export quota.

But all these measures have failed to help stabilize the price of rare earths, because smugglers charge about 30 percent less than the market price for the minerals, according to Ma.

A senior engineer from Baogang Group, the parent of Baotou Steel Rare Earth Hi-Tech Co, China's largest rare earths producer, said smuggling dragged down the export price.

"The smuggling is breaking the rules of fair trade and damaging the economic interests of both the government and legal companies," Wang said.

Chen said customs across the country will strengthen efforts against rare earths smuggling to guarantee the country's interests.

Contact the writers at zhangyan1@chinadaily.com.cn and wangqian@chinadaily.com.cn.