The draft document, called Management and Entry Criteria for Existing Steel Plants, also said steel plants which fail to meet standards for environmental protection, will be forced to upgrade equipment, or their licenses will be cancelled.

Coal and water used to produce 1 ton of steel should be limited to no more than 92 kilograms and 6 tons respectively, with waste water discharge not exceeding 2 cubic meters and emissions of sulfur dioxide under 1.8 kilograms per ton of steel, according to the draft document.

"Those enterprises with no hope of improving their standards must gradually withdraw from the steel production," the document said. The draft document also suggested banks should not extend credit and government departments must not issue iron ore import permits to steel plants failing to meet the requirements.

However, steel market analysts questioned the effectiveness of the draft document, noting that China has been trying for years to drive inefficient and highly polluting smaller steel plants out of the steel industry, but with little impact.

The same ministry announced last August it was not going to approve new projects on steel-making during the next three years, but 32 new projects at 27 different steel plants were announced since then, according to Steel Business Briefing, a website covering the steel industry.

The draft document, which was posted on the ministry's website and is open for public opinions, is only applicable to Chinese mainland steel plants, and will be in effect just after the revised version is issued.