A foundry of Hebei Iron and Steel Group Co Ltd in Zhangjiakou, Hebei province. [Photo provided to China Daily]

BEIJING - China plans to cut steel production capacity by 100 million tons to 150 million tons over the next five years, the State Council, China's cabinet, said on Thursday.

No new steel projects will be licensed, outdated plants will be closed, and "zombie" companies -- those which have ceased operations but have not formally gone bankrupt -- eradicated.

Resettlement of workers will be a top priority with steel producers to offer compensation to redundant workers and pay their unpaid wages.

Training and employment services will be provided to help the unemployed find work and unemployment benefit will be paid to those who lose their jobs.

China's steel industry, the world's largest, has been saddled with overcapacity for years. The glut has been felt even more in the past two years as world steel demand contracted.

According to China Iron and Steel Association, crude steel production capacity is about 1.2 billion tons with output falling 2.3 percent last year to 804 million tons.