The Chinese government is warning potential investors in the cement industry to be wary of entering an industry that may soon face excessive production capacity.

Investors should make a careful analysis before investing in cement, because currently supply and demand are basically balanced, prices are stable, and over-supply is approaching, according to a report released by the State Development and Reform Commission ( SDRC) Wednesday.

SDRC statistics show that in 2002, the cement supply was at 725 million tons, and demand 700 million tons. During the first half of this year, China produced 370 million tons of cement, 15 percent up on last year with a sales-output ratio of over 95 percent.

Figures indicate that profits this year were better than last.

An SDRC official said China had adopted an active fiscal policy and expanded domestic demand which had promoted the growth of the industry.

However, problems also appeared during the rapid development, including too many small plants disregarding long-term development plans and environmental protection.

Some enterprises invested in cement blindly and the increase of production both in small and large companies had exacerbated the a trend towards over-supply.

Small plants with outdated technologies operated at the risk of environment pollution, especially in the west of China.

Cheap cement from small companies had hindered the development of the cement industry as a whole in China, the SDRC official said.

The official said the Chinese government would take measures to eliminate small backward companies and strengthen regulations, aiming to promote a sound development of the cement industry.

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