China’s cabinet has laid out plans to curb overcapacity in industries such as steel, warning that the country's economic recovery could otherwise be hampered.

In a reiteration of existing policy targets, the State Council said meeting the government’s long-standing goal of reducing overcapacity was urgent because the result of inaction would be factory closures, job losses and rising bad bank loans.

In a notice on its website, the Chinese government said the industries were still blindly expandinggovernment vows. For the steel industry, the government toughened its tone by calling some 10% of the country's crude steel capacity illegitimate, but did not elaborate what it would do about it.

It said most of the 58Mt of steel capacity under construction was illegitimate. Curbs had to be implemented in time to stop overcapacity. The cabinet said it would no longer approve or support any new steel projects or any expansion in existing projects.

By 2011, blast furnaces with a capacity of 400m3 or less, and rolling furnaces and electric furnaces with a capacity of 30t or less, must be eliminated.

*Also see China update November/December.