China's Next-Generation Industrial Policy: From Breakthroughs in Key Areas to Comprehensive Coverage

From "Made in China 2025" to "Comprehensive Industrial Policy"

Ten years ago, when "Made in China 2025" (MIC25) was translated and widely disseminated, external assessments of it were cautious and warning. Now, looking back at that strategic document, its degree of implementation has far exceeded most expectations. But what deserves more attention is that China is moving toward a brand-new stage of industrial policy—a systematic intervention system that is no longer confined to a list of specific industries, but covers nearly all economic sectors.

The latest Rhodium Group report, "China's Next-Generation Industrial Policy," points out that China's industrial strategy is undergoing two qualitative changes: first, policy coverage extends from upstream raw materials and industrial equipment to downstream applications, services, and frontier technologies, forming a "full-chain" intervention; second, these domestic actions are accelerating China's dominance in global trade, deepening other economies' dependence on Chinese supply chains, and driving rapid overseas expansion of domestic firms.

Continuity and Upgrading of Policy Logic

The core of "Made in China 2025" was the localization rate and the catch-up of strategic emerging industries. It has achieved remarkable success—especially in areas such as new energy vehicles and information and communication equipment, where Chinese companies have built global competitiveness. But in the most cutting-edge segments, such as high-end semiconductors, advanced aviation, and biomedicine, the gap still exists. The new stage of industrial policy has not shied away from these shortcomings; instead, it places equal emphasis on "filling chain gaps" and "building new chains," attempting to achieve breakthroughs on a broader battlefield.

A key change is that policy no longer focuses only on a few "lighthouse industries," but also brings mature industries onto the upgrading track. Facing overcapacity and price pressure, Beijing has not chosen to simply cut capacity, but instead responds by supporting technological transformation and encouraging companies to seize market share at lower costs. Industries such as steel, solar photovoltaics, and power batteries are all undergoing this path of "exchanging scale for upgrading."

At the same time, the services sector, which had previously been relatively neglected, is beginning to receive more attention. Policy efforts are clearly increasing in areas such as software, data processing, and drug R&D. The decision-making level regards the present as a window period for "changing lanes to overtake," especially on disruptive technologies like artificial intelligence, quantum computing, and future energy systems. Notably, these technologies are no longer merely objects of R&D funding; rather, actual markets are being created through government procurement and the demand of state-owned enterprises, promoting large-scale application. Artificial intelligence in particular has become a core pillar. This shift from "subsidizing supply" to "creating demand" marks a leap in policy implementation style.

Policy Adjustment Under Constraints: Concentrating Resources, Strengthening Control

Compared with ten years ago, today's China faces a markedly different macroeconomic environment: slowing economic growth, weak domestic demand, rising fiscal pressure, and declining capital allocation efficiency. But the response of industrial policy is not contraction, but an upgrade of "concentrating resources to accomplish major tasks."The report shows that Beijing is tightening control over fiscal spending, bank lending, capital markets, and national investment funds. Government guidance funds are being consolidated and aligned more closely with national strategic objectives; bank lending is being directed toward specific sectors through targeted relending tools and regulatory guidance; at the local level, duplicate or inefficient tax breaks and fiscal subsidies are being cleaned up. In essence, this is a "re-centralization"—reintroducing non-market considerations into a financial system after decades of marketization. The short-term effect of this approach is to enhance the power of industrial policy, but in the long run it may undermine economic vitality and allocative efficiency, especially against the backdrop of declining corporate profits, weak private investment, and slowing R&D growth.

Global Implications: A Doubling Trade Surplus and China Shock 2.0

The combination of industrial policy and insufficient domestic demand is producing dramatic external effects. Since 2019, China's manufacturing trade surplus has roughly doubled to about $2 trillion. Many observers call this "China Shock 2.0." This stems not only from export growth, but also from deepening import substitution—China no longer relies on foreign components and machinery in more and more areas.

Policy tools are also being actively used to consolidate advantageous positions in global value chains and counter other countries' diversification strategies. In upstream segments such as critical minerals, wafers, and magnets, China already holds a dominant share, and this dominance is now expanding to a broader range of industrial goods.

This deep dependence is both a manifestation of economic efficiency and a source of strategic vulnerability. For foreign companies, the competitive environment in the Chinese market has fundamentally changed; for policymakers in various countries, the warnings from a decade ago—from MERICS, the European Union Chamber of Commerce, and the American Chamber of Commerce—now appear in hindsight to have been restrained rather than exaggerated.

An Uncertain Future

The effectiveness and sustainability of the next generation of industrial policy are not without questions. Overly broad coverage may dilute policy effects, while excessive intervention in the financial system may exacerbate resource allocation distortions. China's growth model transformation—from investment-driven to consumption-driven—is not yet complete, and the domestic demand shortfall continues to constrain long-term potential.

But what is certain is that China will not return to the old path of market liberalism. This state-led industrial race is still accelerating, and its global ripple effects will continue to manifest over the next decade. For economies and companies that have not yet made strategic adjustments, the window is closing. Historical experience shows that when the trend is already clear, the later one acts, the higher the cost.