China's next-generation industrial policy: The transition from "Made in China 2025" to "full industry coverage"

Introduction: Strategic Continuity and Upgrade of Industrial Policy

Ten years ago, "Made in China 2025" established ten priority sectors, seeking to achieve import substitution and global competitiveness in strategic industries such as high-end equipment, new energy vehicles, and information technology. Ten years later, Rhodium Group's latest report, "China's Next-Generation Industrial Policy," reveals a far more ambitious picture: China has not retreated under internal and external pressures. Instead, it has expanded industrial policy to nearly every economic sector, forming an intervention model of "whole-industry coverage." This shift not only reflects China's long-term commitment to manufacturing upgrading, but also signals that global supply chain competition has entered a new phase.

From Priority-Led to Systemic Coverage: The New Logic of Industrial Policy

"Made in China 2025" was, to a large extent, a selective industrial policy focused on clearly defined strategic emerging industries. The current policy framework, by contrast, is more systemic and pervasive: from upstream critical minerals, wafers, and magnetic materials, to industrial equipment, intermediate goods, and downstream applications, and further to software services, data processing, and frontier technologies—none are excluded from the policy's purview. In Rhodium's words, this is an "industrial policy of everything."

This expansion is not simply a replication of the old model across more industries; rather, it embodies an entirely new logic of industrial strategy:

• Mature industries are not abandoned but pushed toward higher value-added segments. Even in the face of overcapacity and price pressures, the government still supports enterprises in maintaining competitiveness by upgrading production technologies, expanding market share, and reducing costs, rather than merely cutting capacity.
• The service sector has become a new policy focus. Areas such as software, data processing, and drug R&D, which were relatively neglected under past industrial policy, are now receiving more support and have already shown visible progress.
• Frontier technologies are seen as a strategic window for "changing lanes to overtake." Artificial intelligence, quantum technology, and future energy are no longer just R&D topics; through public procurement and state-owned enterprise demand, markets are being created to accelerate commercial deployment.

Resource Centralization: Strengthening Policy Tools Amid Constraints

One trend worth noting is that the expansion of China's industrial policy is occurring against a backdrop of increasingly strained macroeconomic conditions: slowing growth, weak domestic demand, rising fiscal pressure, and declining capital allocation efficiency. Yet Beijing has not chosen to scale back intervention. Instead, it has responded through re-centralization and tighter financial coordination.

This manifests at several levels: first, government guidance funds have been consolidated to serve national strategic priorities more closely; second, bank credit is channeled into specific areas through targeted relending and regulatory guidance; and third, duplicative local-level tax and fiscal subsidies have been cleaned up. In essence, policymakers are re-embedding non-market considerations into the operational logic of banks, state-owned enterprises, and capital markets.This recentralization may improve the targeting of industrial policy in the short term, but the Rhodium report also warns that the expansion of policy coverage could dilute policy effectiveness, and that the state's growing influence in financial markets may further reduce the efficiency of resource allocation. Signs have already emerged: declining corporate profitability, weak private investment, and slowing R&D growth in key industries. Over the long run, this will weigh on China's productivity and potential growth rate.

Global impact accelerating: from "China Shock" to "supply chain dependence"

The report notes that the global impact of China's industrial and economic policies has accelerated markedly over the past three years and is likely to keep expanding. Sustained policy support combined with weak domestic demand has driven a rapid expansion in China's manufacturing trade surplus—roughly doubling since 2019 to about $2 trillion. Many observers have called this "China Shock 2.0."

More importantly, a global pattern of dependence is taking shape. Through its positioning in key raw materials, rare earths, magnetic materials, photovoltaic modules, new energy vehicles, and other fields, China has not only maintained its export advantages but also successfully achieved import substitution. Policy tools have also been used to consolidate its dominant position in global value chains and to respond to external diversification strategies. For example, in critical minerals and certain intermediate goods, the global capacity expansion of Chinese companies has reshaped the procurement networks of multinational corporations.

Challenges and prospects: the long-term costs of industrial policy

The next generation of industrial policy is not without inherent contradictions. As the scope of intervention expands, China may face the dilemma of diminishing policy returns. Over-reliance on state-directed resource allocation could hinder private-sector innovation and the market's self-regulating capacity. Current evidence shows that China still has clear shortcomings in certain high-tech fields, such as high-end semiconductors, advanced aerospace, and biomedicine.

But what cannot be ignored is that the execution capacity and learning ability of China's industrial policy have been fully demonstrated over the past decade. In the future, China is likely to continue advancing manufacturing upgrading under the framework of "whole-industry coverage," through more refined resource allocation and more proactive demand-side policies. For multinational companies and policy researchers, understanding this paradigm shift will help anticipate the evolution of the global industrial landscape better than debating its pros and cons.

Conclusion

China's industrial policy has entered a new phase of "systemic intervention." This intervention will shape the structure of global supply chains over the next five to ten years and will also profoundly affect China's own economic growth path. As the Rhodium report suggests, the earlier warnings were not unfounded; now, a new wave of industrial development is just beginning.