China's Ministry of Industry and Information Technology has asked many iron and steel mills to slash capacity but the industry's production volume has continued to grow even after some old mills were torn down, according to the Innovative Finance Observation.

Figures compiled by the National Bureau of Statistics showed that 63 million tonnes of steelmaking capacity was eliminated between 2006 and 2012, but 440 million tonnes of extra capacity was added.

Meanwhile, 6-8 million tonnes of outdated capacity from eight iron and steel companies was terminated on Nov. 24. The companies involved were all privately-owned, small-scale and had halted capacity for more than six months.

"The government seems to be determined this time, but it is hard to say how the results will turn out," said Wang Tao, chief economist at UBS Securities.

Wang said that Tangshan in northern China's Hebei province is one of world's largest strongholds for steel production, but overcapacity has slashed profits.

The development of the iron and steel industry in Tangshan has relied mainly on the private sector, Wang said. But the Tangshan government is now lending its support to large state-run firms, exerting significant pressure on private companies.

The city remains a major steel-production zone in China as it has abundant iron and steel ores, a systematic iron and steel industry, and experienced smelter workers. It is due to these advantages that the private sector grew rapidly from 2000 and pushed capacity to 100 million tonnes. In late 2002, the total iron and steel production was recorded at 12 million tonnes and surged by 70% to 21 million tonnes a year later.

Hebei's iron and steel production was the highest nationwide for 12 straight years, and the current capacity is 200 million tonnes, with the capacity in Tangshan accounting for one-eighth of the total. However, aside from the overcapacity issues, the rapid development of the industry has also had an impact on air quality, with Tangshan making it into the top 10 most polluted cities list this year, according to the Ministry of Environmental Protection.