China's steel industry has to change from the capacity expansion-driven to the innovation-driven development model as the country upgrades its industrial structure, said Xu Lejiang, chairman of Baosteel Group Co, the country's largest listed steelmaker.

Modern economic development requires steel companies to provide products with higher quality and diversified services, said Xu during the Boao Forum for Asia Annual Conference.

China's steel industry has been suffering from overcapacity in recent years, and companies in the sector went through a tough year in 2012 with huge losses.

Xu said the reasons for the current overcapacity problem are related to large-scale infrastructure construction projects during the country's urbanization drive in the past years.

"However, the steel industry reform is not easy and will cause problems including employment and local taxes issues," he said. "We're making efforts on industrial transformation, but it's not that easy."Recently, Baosteel has moved some projects outside Shanghai, the headquarters of the company, and adjusted its product structures according to changes in the market.

Last year, the listed arm of the company posted revenue of 191.51 billion yuan ($31 billion), a 14.06 percent drop year-on-year.