ANNUAL REPORT

dkrause on DSKHT7XVN1PROD with USCC
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chinery will be forced to import components from China and elsewhere,
raising the possibility that products of subpar or compromised
quality could endanger U.S. military personnel and limit
the country’s ability to respond to a military threat. 177 General
Adams notes, ‘‘[The United States] cannot sit idly by as [its] most
dangerous strategic competitors rob [it] of the capability that ensure
[its] weapons and equipment have a reliable source of steel for
the future.’’ 178
Chinese Policy Responses
Beijing has repeatedly stated its commitment to eliminating excess
capacity, yet progress has been extremely slow—and in most
cases nonexistent. 179 In part, the government’s failure to correct
longstanding imbalances is the result of entrenched government interests
and fears of domestic unrest. 180 Efforts to consolidate industries
and eliminate excess capacity necessitate closing weak firms,
laying off employees, and restructuring debt—actions that inherently
cause political, economic, and social instability. 181 As a result,
the Chinese government has been unwilling to implement meaningful
consolidation and restructuring reforms to reduce excess capacity.
182
Over the past five years, China has unveiled numerous policy directives
aimed at reducing overcapacity, yet there have been few
real breakthroughs. 183 In 2010, the State Council issued guidelines
and targets for eliminating excess capacity across several different
industries, but at the end of 2012, capacity utilization rates in all
those industries, including steel, measured far below normal levels,
indicating severe overcapacity. 184 In 2013, the State Council issued
its ‘‘Guidance to Resolve the Serious Overcapacity Problem,’’ a policy
directive acknowledging the extent of China’s overcapacity problem
and putting forth recommendations to address the problem, including
boosting domestic demand, increasing external demand
through a ‘‘going global’’ strategy, promoting SOE consolidation,
and strengthening environmental and energy efficiency standards.
185 Last year, China released its ‘‘Steel Industry Adjustment
Policy,’’ aimed at reducing the production of the top ten steel
groups to no less than 60 percent of China’s current production by
2025, as well as increasing the steel industry’s capacity utilization
rate to 80 percent by 2017. 186
To reach the goals set in the ‘‘Steel Industry Adjustment Policy,’’
China has announced a series of targets for cutting production of
building materials, including plans to cut coal and steel production
by 10 percent over the next two years. 187 In February 2016, the
State Council announced China will reduce annual crude steel capacity
by between 100 million and 150 million metric tons by
2020—as much as 13 percent of existing capacity—and eliminate
400,000 jobs from the sector. 188 Four months later, the State Council
laid out more specifics on capacity reduction, announcing goals
for cutting annual crude steel capacity by 45 million metric tons
and reducing coal capacity by more than 250 million metric tons
in 2016. 189 Li Xinchuang, head of the China Metallurgical Industry
Planning and Research Institute, also declared plans to close ‘‘zombie’’
companies, which account for around 7.5 percent of China’s in-
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