Market forces will reduce China's industrial overcapacity, Su Bo, Vice Minister of Industry and Information Technology, said in Beijing on Monday.

"Overcapacity has become a great challenge for the Chinese economy, and we need to let the market to play a bigger role in cutting overcapacity in sectors including cement and power generation equipment," Su told the China Development Forum.

Reducing production capacity will help Chinese companies trying to climb the value chain, and provide opprtunities for cooperation between foreign and Chinese companies, he said.

China encourages foreign companies to establish research and development centers in China and collaborate with domestic companies to upgrade industrial production, Su added.

Initiated in 2000, the China Development Forum is a platform for the international business and academic communities to interact with Chinese decision makers and economic planners.