The central government is asking major coal production regions to keep annual coal output growth below 4 percent due to shrinking demand and declining prices, in a move to help the industry become sustainable, a senior official said.

The government aims to keep the total coal output under 3.65 billion metric tons with a growth rate of less than 4 percent, said Wu Yin, deputy director of the National Energy Administration at the China International Forum on Coal Industry.

According to figures from local governments, the Inner Mongolia autonomous region produced 680 million tons of coal during the first eight months, 11.5 percent up year-on-year.

Another major coal producer, Shanxi province's coal output in the first eight months totaled 604 million tons, 7.69 percent up compared with the same period last year.

Wu said that China's coal output has seen rapid growth since the beginning of the year, but that coal consumption is slowing down and inventories are increasing, which led to huge prices drop in the past three months.

"The coal prices' fall to a reasonable level is helpful to solve the contradiction between increasing coal demand for power generation and tight coal supply. However, when the prices drop to a severely low level, it will harm both the coal industry and its downstream industries," he said.

Affected by less coal demand and increasing hydropower generation, China's coal prices this year have declined from 787 yuan ($123) a ton to 626 yuan a ton with a 20 percent drop from May to August, according to figures from cqcoal.com, a coal information website in China's major coal trading port Qinghuangdao in Hebei province.

Prices increased a little in September because of growing demand from power plants. However, analysts said that prices may still fall in the fourth quarter because of the macro economy and large coal stockpiles in power plants.

"Coal inventories in power plants are at a high level at present," said Dai Bing, senior analyst at coal.com.cn, an online coal trading platform. "Major power plants' coal inventories totaled 84.64 million tons, up 37.2 percent compared with last year."

Inventories can last for 25 days on average for those power plants, 10 days more than in the same period last year, which will lead to less coal purchases and lower prices, he said.

Although the outlook is not rosy for the coal industry, officials said it is a good chance for companies to diversify coal usage and adjust the production structure.

Wu said the country will continue to see mergers and acquisitions in the coal industry, and the elimination of small-scale coalmines which don't own advanced technologies or meet safety requirements.

In recent years, China has been making efforts to improve the modernization of coalmines and raising the safety standards of miners' working conditions, said Peng Jianxun, deputy director of the State Administration of Coal Mine Safety during the forum.

He said that, by the end of September, China's death rate for million tons of coal had dropped to 0.38 from 0.56 in 2011.

"The working environment and safety requirements have been improved a lot in recent years. However, in some less developed regions, it is still a problem," he said. "Up to 80 percent of the coalmines are small scale without advanced facilities. The gap between large and modern coal mines and the small ones need to be narrowed," Peng said.

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