Tackling overcapacity is top priority

The government also will establish an information system for the industries with excess production capacity, with the help of industrial associations, to practice timely supervision and take precautionary measures.

The government must change its way of dealing with the market and redefine its duties in boosting economic growth, said Xue Shengwen, a senior researcher with Beijing-based CIConsulting.

"Since the 4 trillion yuan ($645 billion) stimulus package of the government in 2008, a lot of funds have entered heavy industry and caused serious overcapacity in the iron and steel, and the photovoltaic and calcium carbide industries," Xue said.

The reform plan made by the just-concluded Third Plenum of the Communist Party of China's 18th Central Committee acknowledges the government's role in addressing overcapacity.

It said that the government should enhance market-entry criteria in energy saving, the environment, technology and security to form a long-term mechanism for preventing and digesting overcapacity.

There also should be a more comprehensive assessment system for development, which must include energy waste, environmental damage, ecology benefits and overcapacity as the main indexes to prevent the government from being led by the need for fast economic growth.

"The government should stop the investments, loans and preferential policies in land and taxes for industries with backward or overcapacities," Miao Changxing, deputy director of industrial policy division of the Ministry of Industry and Information Technology, was quoted as saying by Xinhua News Agency.

"The government should create a healthy market environment to encourage the merging and reorganization of the problematic enterprises to weed out incompetent industries and foster innovation," Miao said.