China's iron & steel companies reported a staggering 70 percent liability ratio in the first ten months of this year, with sales margin down to a mere 0.43 percent, a government official said.

His remark was made at an annual event over the weekend in Shanghai, based on performance of 86 member companies of the China Iron and Steel Association.

Total liabilities in the companies - 21 percent of which posted a net loss - hit 1 trillion yuan in the period, and their margins were among the lowest across all sectors in the economy, said Miao Changxing, a senior official at the Ministry of Industry and Information Technology.

Overcapacity remained as a big threat for the industry, with overall capacity utilization rate at 75 percent in 2012, said Miao, who is Deputy Director of the MIIT's Department of Industrial Policy.

The excessive capacity has greately weighted on profitability in the industry, said Miao. He predicted China's iron & steel capacity will reach 780 million tonnes this year.

"Sales margins of major steel makers fell to only 0.04 percent in 2012, down straight forward from 2.42 percent in 2011, around 3 percent in 2008-2011, and 7-8 percent in 2003-2004," according to Miao.

Overcapacity is not the only factor weighing against the industry, Miao said. About 60 percent of the capacity is being generated in haze-blanketed areas, and roughly 70 percent is in areas with severe water shortage, which is unsustainable.

Chinese steel makers also lack innovation, which is much needed for a turn-around, he said. Major steel companies invest only 1.1 percent of revenue in research and development, much lower than 3 percent in developed countries, according to Miao.

He was also concerned about China's heavy reliance on imported iron ore. China boosted iron ore imports to 744 million tonnes in 2012 from 70 million in 2000, lifting the dependency ratio to more than 68 percent, he said.