The central government has set up a fund to help cut excess capacity in heavy industries, like steel, coal and oil, which are currently suffering heavy losses. Beijing is searching for ways to tackle both the supply glut and slow demand.

Prices in China's biggest industries including steel, coal, oil and nonferrous metals are continuing to drop. Chinese steel prices, for example, have fallen some 37 percent last year. That has also impacted demand for the steel-making ingredient iron ore, which is now down over 30 percent since last year.

Liu Xuezhi, senior analyst at Bank of Communications says the resulting imbalance between supply and demand is also leading to slumping commodity prices.

"First, demand is weakening as China is stepping up the reduction in over-capacity. The whole world, America, Japan and some emerging countries, is re-structuring its economy," he said.

"Second, countries in South America and other emerging economies are major export and manufacturing countries. They invested a lot several years ago and that has resulted in the current supply gluts."

The fall in commodity prices started about 4 years ago, as world economies began to slow. Wan Zhao, Senior Analyst from China Merchants Bank says the downward trend in commodity prices will continue, as economic fundamentals will not change in the short term.

"I think commodity prices will continue to fall in the next two or three years. We're not seeing bottom prices yet. China's economy may bottom out in 2017 or 2018, and that would lead to an accompanying increase in commodity prices," said Wan Zhao, senior analyst, China Merchants Bank.

Falling prices and the resulting factory shutdowns are a nationwide concern. Tangshan Songting Iron and Steel, with an annual capacity of 5 million tons, was closed last November, for example. Wan says that tackling overcapacity might be a painful transformation as some loss-making firms will face bankruptcy.

"The central government encourages re-organizing and merging in these industries to avoid over-competitiveness. Restructuring is the best way to prevent a large number of defaults and unemployment and to tackle the over-capacity issue," Wan said.

Wan says that government should continue to monitor additional industrial supply, to avoid a new round of supply gluts. Reports say the first round of government funds focusing on mergers and reorganizations will come to about 30 billion yuan.

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