The Ministry of Industry and Information Technology (MIIT) announced Monday a new policy to ensure zero growth of steel capacity in 2018.
The new policy forbids plants from increasing capacity.
In environmentally sensitive areas of the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River Delta, steel plants should remove at least 1.25 tons of outdated capacity for every 1 ton of new capacity.
Steel profits improved amid capacity cuts in 2017.
"In the January-November period last year, combined net profits in the ferrous metal smelting and rolling sector rose 180 percent year on year to about 314 billion yuan ($48 billion)," said a MIIT statement.
The steel sector must focus on quality and profits while cutting overcapacity, it said.