The Japanese government and private companies will spend $1.34 billion to curb Japan's dependence on rare-earth imports from China by a third, the Nikkei news report said Friday.

The Ministry of Economy, Trade and Industry has selected an initial 110 companies that will receive subsidies totaling 33.1 billion yen, as part of efforts to diversify procurement and additionally invest 9 billion yen in other subsidies and encourage more companies to apply for them, the report said.

Rare earth metals have a wide variety of applications. They are used in hybrid car motors, computer hard drives, cell phones, and wind turbines. They are also essential for military equipment. Jet engines, smart bombs and guided missiles, lasers, radar, night vision goggles, and satellites all depend on rare earth metals to function.

The investments are expected to slash Japan's annual imports of rare-earth elements from China by about 10,000 tons from the current 30,000 tons, the paper added.

China suspended exports of rare-earth elements to Japan as an apparent protest to the arrest of a Chinese skipper in early September, following his boat's collision with Japanese coastguard vessels off disputed islets in the East China Sea. Beijing said it re-stared exports in late September, but Japanese traders said shipments resumed only very slowly.

China, has exported 6,000 tons, or 49.8 percent, of its total rare earth to Japan, representing  a 167 percent rise year on year, according to China's Ministry of Commerce.

According to the US Geological Survey's Mineral Commodities Summary, China produces approximately 97 per cent of the world's rare earth. Of the 124,000 tonnes of ore mined in the year 2009, China produced 120,000 tonnes.

China mines about 90 percent of the world's rare earth minerals - which is a collection of seventeen chemical elements and is used to various technological devices, cellular phones, high performance batteries, flat screen televisions, green energy technology, and are critical to the future of hybrid and electric cars, high-tech military applications and superconductors and fiber-optic communication systems.

China has been reducing export quotas of rare earth minerals for the past few years, citing environmental concerns. However, Wang Caifeng, who is in charge of setting up the China Rare Earth Industry Association, stated that China might slightly raise the production cap and export quota next year.

China's monopoly of the rare earths market has allowed it to manipulate this market by restricting production, using export quotas to limit global supply, and increasing taxes on rare earth metals. The Organization for Economic Cooperation and Development has estimated that non-Chinese producers pay at least 31 percent more for raw rare earth metals than Chinese producers. As a result a black market in rare earths has developed.