A worker at a steel factory in Dalian, Northeast China's Liaoning province, August 10, 2016. [Photo/VCG]

Foreign companies will be encouraged to participate in the reorganization of Chinese steel companies, under a plan to cut crude steel production released by the Ministry of Industry and Information Technology.

The development of iron and steel (2016-20) plan, released Monday, states that Chinese steel companies must be further internationalized through equity sharing and holding, to improve product quality and management.

Chinese steel companies will be encouraged to build production and processing bases in key markets for the Belt and Road Initiative that have good natural resources and market potential, and are also home to high-speed train and power projects.

Foreign companies are invited to join China to undertake projects in countries along the belt road.

Under the plan, the amount of crude steel capacity in China is to be cut by up to 150 million tons, to less than one billion tons by 2020, as demand for the product drops.

Any project that aims to expand steel production capacity will be banned.

Xin Guobin, vice minister of the Ministry of Industry and Information Technology, said that the steel industry must adopt intelligent manufacturing to reform itself.

"We have overcapacity in low-end products while the high quality products are still lacking. The Chinese economy needs more sophisticated steel products for more technology-oriented industrial development," said Xin.

The domestic consumption of crude steel is expected to be 650-700 million tons by 2020, less than the estimated output of 750-800 million tons.

The plan also requires energy consumption in the steel industry to be reduced by more than 10 percent while major pollutants must be cut by more than 15 percent.

The biggest 10 steel companies are predicted to make up about 60 percent of the industry by 2020, up from the current 34 percent.

The number of steel companies is to be reduced as efforts are concentrated on building high-quality steel bases in Zhenjiang Port (Guangzhou) and Fangchenggang Port (Guangxi Zhuang autonomous region).

Companies with high ratio of liabilities to assets must prioritize debt reduction.