China is likely to adopt stricter measures to tackle its overcapacity problem as low investment returns take their toll on the economy.

Although the country's efforts to promote urbanization have boosted market confidence, industries such as steel are facing an arduous task to digest inventories, said the country's top economic planning agency.

Steel products inventories in 26 monitored cities increased by 84.57 percent in the first quarter, compared with the beginning of this year, the National Development and Reform Commission said in a statement.