China will focus on improving the quality and structure of its industrial capacity in 2018, the National Development and Reform Commission said at its annual work conference on Friday.

The country will both cut and upgrade capacity next year, instead of the target-based system of capacity reduction adopted in the past two years, said He Lifeng, chairman of the NDRC, the country's top economic planner.

The NDRC conference comes after China's leaders on Wednesday pledged the country would further its supply-side structural reform next year, with more efforts to improve economic quality and cut overcapacity.

"China will continue to cut outdated steel capacity and prevent shuttered or illegal steel mills from returning to the market in 2018," said Xu Wenli, head of the Iron and Steel Division at the Ministry of Industry and Information Technology.

In the steel sector, the ministry is working on the updated version of capacity upgrading policy, which is expected to be implemented next year, according to Xu.

By the end of August this year, the country had cut its steel capacity by more than 115 million metric tons.

China cut coal capacity by more than 290 million tons in 2016. This year's target was 150 million tons, which was accomplished by October.

China still has 3,500 coal mines each with annual capacity of less than 300,000 tons, which produce a total of 500 million tons of coal every year, accounting for 10 percent of the country's total coal output, according to Zhao Chenxi, head of the bureau of economic operations adjustment under the NDRC.

"However, more than 50 percent of accidents occur in such small and often unsafe coal mines," Zhao said. "China will firmly close illegal and unsafe coal mines. The country should ensure more coal mines with high-quality capacity to upgrade the country's coal supply."