* Outdated manufacturing capacity in 18 industries targeted

* Cement, coking, iron, paper sectors affected

* Could have impact on activity indicators -economist

SHANGHAI, Aug 9 - China has ordered more than 2,000 companies in 18 industries including cement, coking, iron, paper and dyeing to shut outdated manufacturing capacity by the end of September, state media said on Monday.

The factories targeted for closure were either highly polluting, highly energy-wasting, or did not meet safety requirements, the Ministry of Industry and Information Technology announced in an order on Sunday, the Shanghai Securities News and other official newspapers reported on Monday.

Firms that fail to comply with the orders could face penalties including having their sewage treatment licenses revoked, lending curbs, or even having their business licenses withdrawn, it said.

"This is what we call 'supply-side adjustment'," Qing Wang, an economist at Morgan Stanley in Hong Kong, said in an emailed comment.

Such adjustments will likely have a direct impact in terms of weaker readings for key economic indicators including industrial production and power usage, but do not indicate a deterioration in China's economic fundamentals, Wang said.

"This is because closing down inefficient, polluting enterprises have fundamentally different implications to a sharp slowdown in investment, consumption, or exports caused by demand shocks."

China, faced with serious environmental problems and pressure on resources, has been seeking to upgrade its manufacturing sector, implementing stricter energy efficiency and pollution targets and forcing the closure of wasteful capacity.

Beijing has pledged to cut nationwide energy intensity -- the amount of fuel needed to generate each unit of gross domestic product -- by 20 percent within five years, from the 2005 level.

The latest data suggests energy intensity fell a total of nearly 16 percent in the past four years, putting its five-year target within reach.

The companies affected by the latest curbs include the parent company of Guangxi-based Liuzhou Iron and Steel <601003.SS> and a cement-making unit of Jilin Yatai Co <600881.SS>, which is based in the northeast of the country.

In a parallel initiative, the industry ministry is working to consolidate the steel sector by closing small mills and raising production standards, focusing on shutting mills that produce less than 1 million tonnes of crude steel or 300,000 tonnes of higher-end steel a year. (Reporting by Jason Subler and Samuel Shen; Editing by Ken Wills)

From markets.ft:

"Year on year China Environment Ltd grew revenues 808.34% from 55.00m to 499.59m while net income improved 3,163.80% from 1.65m to 53.84m. "

"In 2009, China Environment Ltd increased its cash reserves by 47.38%, or 22.24m. Cash Flow from Financing totalled 60.56m or 12.12% of revenues. In addition the company used 65.02m for operations while cash from investing totalled 26.25m."

"China Environment Ltd appears to have little financial risk as the company holds a substantial amount of cash on its books with little or no debt."

Still believe in this counter's potential in China. The government's awareness on the county's environmental problems is increasing. Sooner or later companies who still wants to survive in this industry will have to do something abt their emittions or face closure.

But somehow this counter is not moving.