State-sanctioned cuts in China’s crude steel production could result in up to 400,000 steel sector employees losing their jobs, a Chinese government official indicated this week.

Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, spoke of the potential job losses after China’s State Council announced on Sunday that it would cut between 100 to 150 million tons of steel production capacity over an undesignated length of time.

The government said the cuts would happen faster than the 90 million tons of capacity already cut “in recent years.”

The Council also said authorities will step up in their efforts to restrict and monitor the opening of new capacity, and in principle, not authorize any new capacity projects.  Central authorities are to use subsidies to incentivize local governments to enact the capacity cuts.

The statement admits that the policy will create ‘employment difficulties’, but emphasizes that people who lose their jobs will have access to various assistance programs to maintain their living standards.

“While the closures will increase volatility for related regions and sectors during implementation, its success” would show leaders’ “willingness to reform the economy in ways that increase productivity,” stated Brian Jackson, China economist at IHS Global Insight. “Official data from 2012 show that steel accounted for about 2.2% of China’s nominal GDP, although that ratio has likely fallen in the last four years as prices collapsed.”