China's Next-generation Industrial Policy: From Selective Intervention to Systemic Reshaping

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

A decade ago, "Made in China 2025" set clear targets for China's strategic emerging industries. Now, according to the latest report by the Rhodium Group, *China’s Next-Generation Industrial Policy*, China is entering a new phase of industrial policy—with a scope and depth of intervention far exceeding the past. The report describes it as "everything industrial policy": covering not only cutting-edge technologies but extending to mature manufacturing, upstream basic materials, intermediate goods, and downstream services. This marks a shift from selective intervention to systemic reshaping.

The report, prefaced by the American Chamber of Commerce, clearly states that China has not retreated amid domestic economic slowdown and international pressure; instead, it has intensified state intervention. Policy tools are moving from "clear target lists" to "pervasive infiltration." For example, even in traditional industries facing overcapacity, the government is pushing enterprises to upgrade technology, reduce costs, and compete for market share rather than mandating output cuts. The service sector—previously relatively neglected—now receives more policy support in areas like software, data processing, and drug R&D.

Evolution and Constraints of the Policy Toolkit

Against a tighter macroeconomic backdrop—slower growth, weak domestic demand, and rising fiscal pressure—Beijing has not reduced intervention, but instead adapted through re-centralization and stricter resource coordination. The report notes that the government is tightening control over fiscal spending, bank lending, capital markets, and state investment funds to ensure limited resources are channeled toward strategic priorities. Government guidance funds are being consolidated and more closely aligned with national objectives; bank credit is being directed via targeted refinancing tools and regulatory guidance; and wasteful or duplicative tax/fee incentives at the local level are being cut.

This return to "non-market" logic may extend the effectiveness of industrial policy in the short term, but in the long run it will undermine China's economic vitality and efficiency. The report warns that overly broad coverage of industrial policy may dilute its effectiveness, while increased state intervention in financial markets could reduce resource allocation efficiency. Signs already exist: declining corporate profit margins, weak private investment, and slowing R&D growth in key industries.

Global Implications: Accelerated Trade Dominance and Supply Chain Dependency

The combination of industrial policy and weak domestic demand has driven a sharp expansion in China's manufacturing trade surplus. Since 2019, the manufacturing goods surplus has doubled to about $2 trillion. China's growing global market share is evident not only in electric vehicles and clean energy but also in upstream sectors such as chemicals, machinery, and industrial equipment—traditionally dominated by developed economies. The report specifically notes that by volume, China's market share growth in many products is twice that by value, which is systematically underestimated.Therefore, the world’s dependence on China’s supply chains is deepening. The number of products for which China accounts for more than 50% of global exports has nearly doubled. Moreover, China’s intermediate goods and capital goods are embedded in products manufactured and exported by third countries, creating an indirect dependence that is difficult to detect. Beijing is also actively deploying policy tools to consolidate its dominant position in global value chains and curb foreign companies’ diversification strategies.

Long-term Outlook: Opportunities and Risks Coexist

The report argues that the second phase of China’s industrial policy will continue the core logic of “Made in China 2025,” but with a more systematic and more aggressive approach. In the short term, China may achieve breakthroughs in high-tech fields (such as artificial intelligence and quantum computing) and create large-scale markets through public procurement and demand from state-owned enterprises. However, in the long run, declining resource allocation efficiency, weak private sector confidence, and external countermeasures may undermine the sustainability of this model.

For global manufacturing companies and investors, understanding this new phase is crucial. China’s industrial policy is no longer “aiming at a few targets,” but has become a structural force that is difficult to avoid in the global economic architecture. As the report’s preface emphasizes: “The window of opportunity is limited.”