China's stainless steel industry is facing severe overcapacity due to sluggish demand and lack of high-end product manufacturers, the China Business Daily reported Monday.

China's stainless steel industry boasts an annual capacity of 15 million tons, but the actual output is less than nine million tons, according to Li Cheng, an advisor with the Stainless Steel Council of China Special Steel Enterprises Association.

Last year, China produced 8.8 million tons of stainless steel, accounting for 39.5 percent of global output. In the first five months of this year, China's stainless steel output hit 3.56 million tons, up 18 percent over the same period of 2009, accounting for half of the world's production, the paper reported.

As economies are yet to recover fully from the blows of the global financial woes, supply still exceeds demand on the international stainless steel market, making it harder for Chinese enterprises to sell their products overseas.

However, each year China needs to import more than one million tons of high-end stainless steel products from abroad, as there are only about 10 enterprises, out of more than 10,000 stainless steel manufactures, that make high-end stainless steel products, said Jiang Zhenghua, chairman of Jiangsu Sandeli Group. The company engages in manufacturing of steel tubular products for nuclear power plants.

Li said that China should speed up eliminating out-of-date capacity and developing high value-added stainless steel products, instead of increasing capacity, as some local governments are doing.