China's "Next-Generation Industrial Policy": From Selective Support to Comprehensive Intervention

From "Made in China 2025" to "Comprehensive Industrial Policy": Continuity and Upgrading of Strategy

Ten years ago, "Made in China 2025" (MIC25) drew a precise roadmap for China's industrial upgrading, focusing on strategic emerging industries such as new-energy vehicles and information and communication equipment. Today, with most of the plan's goals having been achieved—and in some areas even exceeded—China's industrial policy is entering a more ambitious new phase.

The latest research shows that China's industrial strategy has shifted from selective intervention to what is called "comprehensive industrial policy"—that is, policy coverage is no longer limited to specific industries, but extends to every link of the production chain: from upstream raw materials and industrial equipment, to downstream applications and services, and then to frontier technologies such as artificial intelligence and quantum computing. Policymakers no longer simply eliminate mature industries as "backward production capacity," but instead push them to upgrade toward higher-value links, encouraging enterprises to improve productivity and reduce costs through technological improvements, thereby surviving fierce price competition and expanding market share.

This expansion is not seen as rash in Beijing's eyes, but rather based on the policy experience of the past decade, which is considered "basically successful." Although there are still obvious technological shortcomings in areas such as high-end semiconductors, advanced aerospace, and biomedicine, on the whole China has achieved import substitution in many key industries and established global competitiveness. The policy logic of the new phase is: to consolidate existing advantages while replicating this successful path in more fields.

Adjusting Policy Tools Under Constraints: Resource Concentration and Efficiency Trade-offs

Unlike ten years ago, China's industrial policy now faces a more severe macroeconomic environment. Slowing growth, weak domestic demand, rising fiscal pressure, and declining capital allocation efficiency all constitute hard constraints. However, Beijing has not reined in intervention because of this, but instead chosen a strategy of "recentralization": strengthening control over fiscal expenditure, bank loans, capital markets, and government investment funds to ensure that scarce resources are precisely channeled to national strategic priorities.

Specific measures include: consolidating local government guidance funds to align them more closely with national goals; guiding bank credit toward designated directions through targeted relending and regulatory guidance; and cleaning up inefficient or duplicate tax and fiscal subsidies at the local level. This adjustment means that after decades of market-oriented reform, non-market considerations are being re-implanted into the operating logic of banks, state-owned enterprises, and investment markets. In the short term, this may enhance the effectiveness of industrial policy implementation, but in the long run, it also plants the hidden danger of further declines in resource allocation efficiency.

In fact, there are already signs that this tension is emerging: declining corporate profit margins, weakening private investment willingness, and slowing R&D growth in some key industries. As policy coverage continues to expand and the government's interventionist hand deepens, the marginal benefits of industrial policy may diminish, or even breed new structural imbalances. How to balance strategic goals and economic vitality will become a key test of whether China's industrial policy can remain sustained and efficient in the coming years.

Accelerating Global Impact: Trade Surplus and Supply Chain DependenceOver the past three years, the global spillover effects of China's industrial policy have accelerated markedly. Sustained government support combined with weak domestic demand have driven exceptional growth in Chinese manufacturing exports, which some observers have dubbed "China Shock 2.0." According to reports, since 2019 China's trade surplus in manufactured goods has roughly doubled to nearly $2 trillion, reflecting both export expansion and the success of import substitution.

What is more noteworthy is that the center of gravity of growth is shifting from final consumer goods to critical segments further up the industrial chain—chemicals, machinery, and industrial equipment—areas traditionally dominated by advanced economies. China's rising market share in these fields means that its upstream inputs and capital goods are increasingly embedded in manufactured products made and exported by third countries, creating a form of "indirect dependence" that is difficult to detect and manage.

The report also points out that China's real market share growth has been systematically underestimated. Because domestic producer prices for industrial goods have kept falling, gains in market share measured by value are far smaller than those measured by volume—for many products, volume-based share growth is roughly twice that of value-based growth. This means that China's actual production capacity and output influence in manufacturing are far more powerful than trade data on the surface suggest.

At the same time, the world's dependence on Chinese supply chains is expanding in depth. The number of products for which China accounts for more than 50% of global exports has nearly doubled, and this trend is expected to continue. This dependence exists not only in new energy products such as batteries and photovoltaics, but also extends to many seemingly ordinary intermediate goods and capital goods.

Future Outlook: Strategic Choices and Global Responses

The "comprehensive" nature of China's industrial policy is not without risks. Internally, overcrowded policy tracks may dilute resources and reduce policy effectiveness; and the administrative allocation of financial resources may, over the long term, undermine productivity growth. But in the short and medium term, the intensity and coverage of industrial policy will remain high, because the decision-making level has sufficient political will and institutional tools to push it forward.

For the outside world, this marks that China's competitive advantage in manufacturing is no longer confined to a few export sectors, but is spreading across the entire value chain network. For advanced economies and other manufacturing countries, this means competitive pressure will appear across more product categories and deeper stages of production, and traditional trade defense tools may struggle to cope with such a systemic shock.

However, this is not a zero-sum game. China's rapid commercialization in areas such as clean energy, industrial digitalization, and artificial intelligence is also providing new solutions and low-cost options for global supply chains. The key lies in how countries find a new balance between managing risks and seizing opportunities.

A decade ago, when the policy document for "Made in China 2025" was translated and widely circulated, many warnings were ignored. Today, the contours of this generation of industrial policy have become clear. Whether for businesses or governments, there is a need to more seriously assess their own position in the web of interdependence with China's industrial system, because China's "comprehensive industrial policy" has already profoundly reshaped the foundation of global manufacturing.