China pushes into 2017 facing both domestic and international challenges. On the domestic front, there’s a narrowing window opportunity to make progress with the deleveraging and structural reform agenda. On the international front, a protectionist stance from the new U.S. administration clouds the outlook for exports. Bloomberg Intelligence Economics’ view is that the right policy combination would provide an effective response to both challenges. Closing down 30% of steel capacity, 25% of coal and 40% of cement would lower the debt to GDP ratio by about 6 percentage points and open space for a shift in lending towards dynamic new-economy firms. With steel a focal point for trade tensions, it would also hedge against a rise in protectionism from trade partners. A combination of strong hiring in the service sector and government sponsored retraining programmes would soften the blow to employment. High collateral levels would dampen the impact on non-performing loans.