China's machinery sector has too much capacity, but companies can cope with this situation by upgrading their products and expanding overseas, a senior industry official said on Monday.

The sector expanded 13.8 percent last year, despite the slowing economy, generating total revenue of 20.4 trillion yuan ($3.34 trillion), according to the China Machinery Industry Federation.

"The growth rate was 4 percentage points higher than the previous year," said Cai Weici, vice-president of the federation.

"It was the first time that total revenue of the country's machinery sector exceeded 20 trillion yuan, as China remained a major world manufacturer."

However, he said, the industry faces a trio of problems - rising costs, low product prices and falling demand - which are constraining profit growth.

According to the federation, the industry had aggregate profits of 1.41 trillion yuan last year, up 15.6 percent, but profits from the core business of making machinery grew only 13.8 percent.

Cai said the difference indicates the weak real economy is getting less attention in China than the "virtual" or financial economy.

"It's hard to calculate a capacity utilization rate for the machinery industry because of the large number and wide range of products and production lines, but overcapacity is a reality," said Cai.

Confronted with excess capacity and weak domestic demand, private companies in the sector turned in good financial performances by expanding in foreign markets, either through exports or by investment abroad.

Machinery exports reached $372.5 billion last year, up 6.24 percent. Imports edged up 0.74 percent to $298.8 billion, according to the federation.