New warning on overcapacity

China's excess capacity issue has become so severe that President Xi Jinping has made special comments on the issue four times this year.

"Increasingly, excess capacity has become a salient problem in the economy and the root cause of many issues," Xi was quoted as saying at one point.

"If solved properly, China's economic structural upgrading will make big progress. If not, new problems could arise and even trigger an economic crisis."

"Excess capacity is not new to China. But the current level, given its scope, number and influence, is unprecedented," Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology, said during the meeting.

"Some local governments favored fast growth too much and relied on investment too much.

"They have tried all means, including offering cheap land, electricity and tax breaks, to attract investment. That strategy has exacerbated continued construction and capacity expansion," said Zhu.

The NDRC said barriers to entry and environmental standards will be two key indicators for phasing out old capacity or adding new capacity.

On the same day, Shang Fulin, chairman of the China Banking Regulatory Commission, said during a meeting with bank executives in the eastern province of Fujian that banks should try to head off a rise in bad loans from industries with excess capacity.

He said banks should also step up efforts to write off some of the nonperforming loans on their books.

Shang said that any form of new credit is prohibited for new projects in industries with overcapacity, and banks shouldn't extend loans or provide funds by issuing wealth management products to back projects that don't have the relevant government approvals.