Meeting the goal may require more vigorous efforts than anticipated. The government previously planned to abandon 80 million tons of backward cement capacities in 2008, but the result was barely an elimination of 60 million tons.

Far-reaching implications

Wang Siyu, an analyst with the Shanghai-headquartered Shenyin Wanguo Securities Co. Ltd., told Beijing Review that the new policy is a long-needed boon for the sector to restore confidence and position itself for future growth.

The circular has raised a series of stringent requirements for cement mills in terms of technology advancement, equipment, energy efficiency and environmental protection, said Wang.

For example, as the policy stipulated, before building a new cement production line, the enterprise should have at least three years of cement production experience and possess at least 50 percent of the total investment. Applicants also need to meet numerous requirements concerning land use and environmental protection, he said.

This is bound to exclude many weak and smaller players from the market, while creating an incentive to streamline the highly fragmented sector, added Wang. The positive effect will start to be felt in 2011, he said.

He Guowen, of Sinolink Securities Co. Ltd., said the regulation will also be a crackdown on the approved projects in many provinces that have yet to be completed. Approved projects that failed to start construction in one year or finish in two years will be forced to close down, he said.

This will effectively deter financially stressed investors from blind investments and help ease the pain of overcapacity, said He.

Never before had the policymakers maintained such a stringent handle over the approved projects, he said.

The new policy is set to help address the market imbalance of supply and demand as of 2010 and soothe worries over excess capacity, while polishing the long-term prospects of the cement industry, he added.

Meanwhile, He pointed out that a sweeping market cleanup is on the way in the coming years as many smaller mills may be shut down or merged into larger enterprises.

"But foreign investors are less likely to be impacted," he said. "Most of them are engaged with advanced technologies, and most importantly, they intend to obtain stakes in Chinese cement companies, instead of building mills of their own."

Regulations on the Cement Industry

First, it is necessary to step up tight control over cement production. Provinces with precalcining cement accounting for more than 70 percent of their total cement output should keep their annual newly added output under 10 percent that of the previous year.

Provinces that have an annual per-capita cement clinker capacity of less than 1,000 kg should eliminate backward capacities as they increase new ones. Those that record an annual per-capita cement clinker capacity of more than 1,000 kg are not allowed to increase new capacities.

Second, enterprises planning to build new cement clinker projects should have at least three years of experiences in cement production.

Third, enterprises intending to invest in new cement projects should possess at least 50 percent of the total investment.

Fourth, approved projects failing to start construction in one year or finish in two years will be forced to close down.

Besides this, cement enterprises should meet regulatory requirements in terms of energy efficiency, environmental protection and operation management, and should also reach the minimum daily cement clinker capacity of 5,000 tons and an annual cement grinding capacity of 600,000 tons.

(Source: The Ministry of Industry and Information Technology)