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The Costs of Reform

China Shakes Up Its State-Owned Enterprises

An employee counts steel bars at a plant in Changzhi, Shanxi Province, January 2008. STRINGER / REUTERS

In 2015, Chinese factories produced more than 800 million metric tons of steel—nearly eight times as much as the United States produced in the same year and more than the entire world produced in 1995. By all accounts, that figure reflects an overcapacity problem: China's big steel firms are increasingly turning to foreign markets to absorb their excess output, but because of lower prices and reduced domestic demand, they are still struggling to make money, losing nearly $10 billion in 2015.

It's not just China's steel sector that suffers from an overcapacity problem. The country is pumping out too much of other industrial products, too, including coal, aluminum, and copper wire.

To its credit, the Chinese government has recognized the need to make cuts to the country's industrial sector. In January, Beijing pledged to trim steel production by between 100 million and 150 million metric tons per year, and in February, it announced plans to cut

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