The paper cited government sources saying the Ministry of Industry and Information Technology (MIIT) was looking at strategic buying and selling, where producers buy up surplus supply when prices fall and sell when prices rise.

The ministry hopes this will quell large price fluctuations, as seen in 2011.

Domestic demand for rare earths tumbled last year after Beijing tightened controls over production and mining and many separation plants closed down after customers retreated from the sky-high prices.

But the paper cited market participants, who noted that China's largest producer Baotou Steel Rare-Earth hi Tech (600111.SS) had failed to stabilize prices with a similar strategy last year.

They suggested it might be better to root out illegal mining and to oversee rare earth trades through a trading platform, the paper said.

China controls 95 percent of the world's rare earths market.

(Reporting by Carrie Ho; Editing by Michael Perry)

• A Permanent Economic Emergency