China Center Quick Note: Expect Speed Bumps on the Road to Supply Side Structural Reform

Since its official promulgation at the Economic Work Conference in December 2015, the Supply Side Structural Reform program (SSSR) has emerged as the biggest and most important economic policy initiative of the Xi Jinping administration. Aiming to tackle some of the most intransigent problems plaguing the Chinese economy – including industrial overcapacity and corporate indebtedness – the program involves multiple industries, virtually every province, thousands of municipalities, and the full arsenal of the State Council and the Chinese Communist Party, including the vocal support of Xi Jinping himself.

At the recent G20 meeting in Hangzhou, Xi Jinping declared: “China will use the utmost effort and most concrete measures regarding production overcapacity; it walks the walk.” Yet, despite this proclaimed full frontal assault, the State Council complained in August of the slow progress in tackling overcapacity, with steel and coal reaching only 47 percent and 38 percent of the 2016 targeted cuts, respectively. This Quick Note helps illuminate some of the “speed bumps” slowing the pace of SSSR implementation. We have focused on the steel industry given its actual and symbolic importance to the SSSR.