Reducing overcapacity is one of the hardest missions in China's ongoing reforms. Cutting overcapacity doesn't involve just excessive mills, smoothing the transition of the laid-off workers is the biggest challenge.

Panzhihua Iron and Steel Group is a major steel producer in west China's Sichuan Province. The company plans to cut 5 million tons of capacity this year, which will lead to a cut of 34 thousand jobs. The engineering company under the group has recently cut 8 branches, with its 7000 employees reduced by half.

Secretary of discipline of engineering company, Panzhihua Iron and Steel, Fan Ruhai, said, "We accept all the employees to participate in competitive employment, and select by their abilities. On the other side, if they want to leave the company and find other jobs, we'd like to help them complete all the procedures."

The company arranged easier positions for some less capable and older employees.

A worker from service branch of Panzhihua Iron and Steel, Wang Wenzhong, said, "I used to work in machinery, and now I'm raising chickens. The company didn't abandon us because we're less capable, but tries its best to arrange a job for us."

In April, regulators released a policy requiring companies to develop various channels for workers' employment. In May, the Ministry of Finance announced a special fund of 100 billion yuan to help companies subsidize their laid-off workers.

Deputy director of Panzhihua employment service administration, Feng Xin, said, "From the angle of the government, unemployed people can get 966 yuan of unemployment insurance each month. The employment department also organizes skill training for unemployed people, to help them find jobs."

About 1.8 million workers in the steel and coal sectors will be cut in the following five years under China's plan. Experts say the supply-side reform is playing a key role in redistributing the work force from sectors with overcapacity to those with large demand.