ANNUAL REPORT

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economically and politically strategic sectors, Beijing is able to direct
both private and public firms to promote state goals.
China’s stalled economic reform agenda presents a particularly
acute problem in the country’s heavy industries, where years of
government subsidies and preferential loans have created pervasive
overcapacity and market distortions. Despite Chinese officials’ repeated
promises to cut production in industries like steel, aluminum,
and coal, reforms have taken a backseat to policies aimed at
maintaining employment and economic growth. Without production
capacity reductions, utilization rates for a variety of products have
declined below optimization levels, while a surge of Chinese exports
has suppressed commodity prices and flooded global markets. The
ramifications of China’s overcapacity are particularly evident in the
U.S. steel industry, where U.S. producers posted net losses of $1.43
billion in the fourth quarter of 2015 and $233 million in the first
quarter of 2016. Although the U.S. International Trade Commission
authorized imposition of new tariffs on Chinese steel dumping in
2016, many dominant U.S. steelmakers have still been forced to
shutter capacity and lay off employees, with as many as 19,000 U.S.
steel and iron workers facing layoffs as a result of Chinese overcapacity.
Over the last 20 years, antidumping (AD) and countervailing duty
(CVD) cases have frequently been brought against China, with over
1,000 AD cases initiated against China globally since 1995. The
United States has been a leading complainant, launching 28 AD
and CVD investigations—out of a total 48 AD/CVD cases globally—
against China in the first nine months of 2016. On December 11,
2016, a provision of China’s WTO accession agreement will expire,
ending a 15-year period during which trade partners were automatically
authorized to treat China as a nonmarket economy for the
purposes of AD and CVD enforcement. The U.S. government has
clarified that the expiration of the accession protocol provision does
not mandate automatic conferral of market economy status to China.
The U.S. Department of Commerce is responsible for determining
whether a country is a market economy for the purposes of AD
investigations, and whether market economy status will apply to
the whole country or on a sector-by-sector basis. If the Department
of Commerce designates China as a market economy, the margins
of U.S. dumping duties imposed on Beijing will be significantly reduced,
allowing China’s anticompetitive activities to further harm
U.S. companies.
Conclusions
• Despite repeated pledges to let the market play a “decisive role”
in resource allocation, Beijing continues to use state-owned enterprises
(SOEs) as a tool to pursue social, industrial, and foreign
policy objectives, offering direct and indirect subsidies and other
incentives to influence business decisions and achieve state
goals. While proposed SOE reforms have made little progress
incorporating market drivers into SOE activities or addressing
the country’s growing credit crisis, they have taken steps to
strengthen state control—particularly in sectors involving the
government’s political or economic interests.