The Group of 20 leading economies will set up a global forum to combat world industrial oversupply, a senior European Union diplomat said Monday at a summit in China.

The final communiqué will say that "measures like subsidies are a root cause of market distortions" and a forum will be set up "to monitor the process" of cutting overcapacity, the official told reporters.

Host country China produces half of the world's steel and it stands accused of dumping on global markets by the US and European Union.

Slumping prices of the metal have plunged the industry into turmoil.

But Chinese firms are suffering crippling losses from low steel prices too, and Beijing has repeatedly pledged to cut overcapacity in the country.

China would not be named in the final document, the diplomat said, and had committed to participate in the forum.

"Half of members wanted this concrete deliverable," he added.

"Now of course we have to enforce and to follow up," the official added. "Politically it is an important step."