To address the overcapacity challenge presented by China’s current economy, China will take a series of measures to reform the supply front and adjust industrial structure, according to a statement from the recently concluded Central Economic Work Conference.

The overcapacity problem—in which demand for products is less than potential supply—continues to hinder China’s economic development and drag down the profit rate of businesses.

Data released by China’s National Bureau of Statistics show that the total profit of above-scale industry in this year’s first ten months slipped by 2 percent from last year, dipping a further 0.3 percentage point compared with the first three quarters.

The downturn is even more severe in the steel and coal industries, whose overcapacity rate exceeds 30 percent, said Liu Shijin, deputy director of China Development Research Foundation. Liu also added that negative growth in both the Producer Price Index (PPI) and industrial profits caused the shutdown of a lot of enterprises.

Overcapacity is also prevalent in cement, glass, non-ferrous metal and many other industries. However, “de-capacity” cannot be achieved in one stroke.

To tackle the challenge, difficulties such as huge debts and structural overcapacity, both of which hinder major industries, must to be overcome.

According to findings from the Central Economic Work Conference, China will minimize bankruptcy to reduce risks, and will take more flexible measures like merger and acquisition. Industrial structures will also be adjusted.

Yang Weimin, deputy director of the Office of the Central Leading Group on Finance and Economic Affairs, said that given a better market, enterprises will gain profit. Then they will be able to upgrade equipment and make further reforms for better development.

China’s local governments are also working toward "de-capacity" and industrial transformation.

Erdos, a city in north China famous for its coal resources, has already successfully gone through an industrial upgrade.

Miao Wei, China's Minister of Industry and Information Technology (MIIT), recently emphasized the importance of eliminating industrial overcapacity through diversified approaches.

According to Miao, strict standards for environmental protection and energy consumption should be adopted. Measures can also include subsidies for industrial restructuring, a pilot program in reducing surplus production of steel, cement and plate glass, risk-sharing mechanisms and more effective regulation.