China's decision to impose limits on production and exports of rare earths is based on concerns about environmental protection and national security and it is not contradictory to the rules of the World Trade Organization, Chen Deming, minister of commerce, told reporters after the third China-Japan high-level economic dialogue in Beijing.

He also said China, Japan and South Korea are likely to sign an investment protection agreement within the year. Chen said China will gradually reduce the production and exports of rare earths, which are widely used in areas from hybrid cars to electronics, and the amount will be further reduced in the second half of the year.

He hoped Japan, a big consumer of the minerals, can understand China's decision.

"Rare earths exist in land where environment is very fragile, so a large amount of extraction hurts China's natural environment. Thus, we had to impose limits on production and trade of rare earths," he said.

China produces about 90 percent of rare earths in the world. He said the slowdown of earth exports may be more significant, as the growth of exports in the first half was very fast.

He said China and Japan exchanged their main concerns in bilateral trade at Saturday's dialogue and talked about cooperation on areas from green economy, finance, to agriculture. They also talked about business climate.