The ministry required the 67 low-end papermaking companies to phase out outdated production capacity and facilities by the end of September. The deadline to eliminate excess capacity is the end of the year.

Authorities won't allow the companies to transfer the overcapacity to other facilities, according to the ministry.

"Production overcapacity has become the biggest challenge of the macro-economy adjustment for the government's new leadership over the next five years," the Financial Times quoted Shen Jianguang, chief economist for China at Mizuho Securities Asia, as saying.

"Rising excess capacity has reduced companies' expectations on investment returns, which resulted in the closure of some factories, an increase in unemployment and a negative effect on residents' revenues and consumption behavior," said Shen, adding that all of these factors will bring pressure to the country's economic development and will worsen the economic slowdown.

According to a report from the Ministry of Industry and Information Technology, China's steel industry has excess capacity of more than 160 million tons, while the figure for the cement sector is above 300 million tons.

"Overproduction has led to price wars in the coal industry because coal prices have been declining for several months this year," said Zhang Zifei, chairman at Shenhua Shendong Coal Group Corp Ltd.

"Coal prices may not increase in the second half of the year and we plan to further curb production costs to offset the negative market effect," said Zhang.