As the campaign to cut overcapacity deepens and the industry's profitability increases, the risks of illegal new capacity also start to grow, reflected by the phenomenon that some steel companies play tricks to build new capacity, and the production of substandard steel reoccurs, said Wang Wei, head of the raw material department of the Ministry of Industry and Information Technology.

China's steel industry has achieved the upper goals two years ahead of schedule for cutting overcapacity set by the 13th Five-Year Plan (2016-20), reducing 150 million metric tons of crude steel capacity, and has removed 140 million tons of substandard steel capacity, according to Wang.

To crack down on such behavior, an inspection panel, co-organized by the ministry and the National Development and Reform Commission, will soon start their inspection tour during the third quarter, he said.

"Substandard steel production and violations of related rules and laws when conducting capacity replacement projects will be the focus of the panel's inspection, and they will serve as warnings" to anyone who attempts to increase new capacity illegally, he said.

More work will be done to make it easier for people to report new capacity that violates laws and regulations to the regulators, according to him.

Wang also said the authorities plan to seek suggestions from industry associations to revise and enhance regulations regarding capacity replacement projects. Current regulations ask steel companies to shut down a larger number of existing capacity before building any new ones.

He Wenbo, executive vice-chairman of the CISA, said that to maintain the progress in cutting overcapacity, it is important to improve the layout of steel capacity on a national level, instead of just within a province, a city, or even a county.

He suggested measures to encourage competent steel companies to conduct mergers and acquisitions across cities, provinces and even regions, in order to efficiently cut capacity and enhance the national steel capacity layout.

He also suggested that it is important to evaluate the actual results of capacity replacement projects, to ensure removed old capacity outstrips new capacity, saying that construction of new capacity must be strictly regulated.

In the fast half of 2019, China produced 492 million tons of crude steel and 587 million tons of steel products, with year-on-year increases of 9.9 percent and 11.4 percent respectively, figures from the CISA showed.