China's Next-Generation Industrial Policy Reshapes Global Markets

Executive Summary

China's industrial policy has undergone a significant transformation, moving beyond the targeted sectoral interventions of Made in China 2025 (MIC25) to a far more systemic and pervasive strategy. This 'next-generation' industrial policy now encompasses mature industries, foundational supply chain nodes, and frontier technologies, effectively becoming an 'industrial policy of everything.' The result is accelerating Chinese trade dominance, deepening dependence of foreign economies on Chinese supply chains, and rapid global expansion of Chinese firms. Beijing is also deploying policy tools to entrench its position and counter foreign diversification efforts, creating new challenges for international businesses and policymakers.

Introduction

A decade after the launch of Made in China 2025, the Chinese government has doubled down on state-led industrial development. Rather than retreating amidst domestic economic headwinds and international backlash, Beijing has broadened and deepened its intervention. This new phase is not merely an extension of past policies but a qualitative shift that touches almost every sector and supply chain layer. Understanding this evolution is critical for multinational corporations, investors, and governments seeking to navigate the increasingly complex global economic landscape.

Background & Context

Made in China 2025, introduced in 2015, set ambitious goals for China to achieve self-sufficiency and global leadership in ten strategic emerging industries, including new energy vehicles, advanced robotics, and information technology. While the plan achieved notable successes—such as China's dominance in solar manufacturing and electric vehicles—it also encountered pushback from trading partners and fell short in high-end semiconductors and aerospace. The new industrial policy builds on these experiences, adopting a more holistic approach that targets not only final products but also upstream inputs, industrial equipment, and digital infrastructure.

Main Analysis

The 'Industrial Policy of Everything'

China's current industrial strategy is characterized by its breadth. Policy instruments now span subsidies, state-guided investment funds, preferential procurement, technology mandates, and regulatory measures that shape entire ecosystems. The government has established a network of 'national manufacturing innovation centers' and 'small giant' enterprises that receive targeted support across supply chains. This approach aims to secure China's position in emerging technologies like artificial intelligence, quantum computing, and biotechnology while simultaneously reinforcing its advantages in mature industries such as steel, chemicals, and textiles.

Refining the Policy Playbook

Beijing has learned from the MIC25 experience, adapting its methods to navigate tighter domestic fiscal constraints and international trade tensions. Instead of high-profile national champions, support is now channeled through provincial and local initiatives, often with less transparency. The use of 'hidden' subsidies, preferential loans, and market access restrictions has become more sophisticated, making it harder for foreign competitors to identify and respond to competitive disadvantages. Additionally, China is leveraging its large domestic market to set technical standards that can become global norms, particularly in digital and green technologies.

Global Impact

Accelerating Trade Dominance

China's industrial policy is driving a rapid expansion of its export capacity across multiple sectors. In 2025, China's global market share in manufacturing exceeded 30%, with particular strength in electronics, machinery, and green energy products. This dominance is not limited to finished goods; China now controls critical nodes in global supply chains, from rare earth processing to battery manufacturing. Foreign companies increasingly find themselves dependent on Chinese suppliers for key components and raw materials, raising strategic vulnerabilities.

Rising Foreign Dependence

Foreign economies, especially in Europe and Southeast Asia, have deepened their reliance on Chinese inputs. Despite efforts to diversify supply chains through initiatives like 'friendshoring,' many industries remain tied to Chinese production due to cost advantages, scale, and infrastructure. China's new industrial policy explicitly aims to prevent decoupling by embedding its firms deeper into global value chains and offering incentives for foreign companies to locate R&D and production in China.

Expansion of Chinese Multinationals

Chinese firms are expanding abroad at an unprecedented pace, driven by both market opportunities and government encouragement. Outward foreign direct investment has surged in sectors such as electric vehicles, batteries, renewable energy, and digital services. These investments often serve to bypass trade barriers and establish local production bases, while also transferring Chinese technology and business models overseas. This expansion is reshaping competitive dynamics in emerging markets and challenging established players in developed economies.

Strategic Insights

Implications for Business

Multinational corporations must reassess their China strategies in light of the evolving policy landscape. The risks of technology transfer, intellectual property leakage, and uneven competition are higher than ever. Companies need to build resilience through supply chain diversification, invest in innovation to maintain technological edges, and engage proactively with policymakers to ensure a level playing field. At the same time, opportunities remain in areas where China seeks foreign expertise, such as high-end semiconductors and advanced materials.

Policy Challenges for Governments

For governments in the US, Europe, and elsewhere, the new Chinese industrial policy demands a coordinated response. Unilateral actions have limited effectiveness; multilateral approaches to addressing subsidies, market access, and technology protection are essential. Investment screening, export controls, and trade remedies need to be updated to address the more opaque nature of China's current interventions. Additionally, domestic industrial policies must be calibrated to boost competitiveness without triggering a subsidy race or protectionist backlash.

Future Outlook

The Next Decade (2026–2036)

Over the next three to ten years, China's industrial policy will likely continue to evolve in sophistication and scope. Key trends include:

• Artificial Intelligence and Digital Economy: China aims to become a global leader in AI applications, particularly in manufacturing, logistics, and smart cities. State support for AI infrastructure and data ecosystems will intensify, potentially creating new dependencies for foreign firms.
• Energy Transition: China's dominance in solar, wind, and battery technologies will deepen, with implications for global climate goals and energy security. Critical minerals supply chains will remain a source of leverage.
• Supply Chain Resilience: Efforts by other countries to diversify supply chains will face headwinds from Chinese counter-strategies, including investment in alternative production bases in Southeast Asia and Africa that remain linked to Chinese capital and standards.
• Geopolitical Competition: Industrial policy will increasingly be a tool of geopolitical influence, with China using its economic weight to shape standards, alliances, and access to markets. This could lead to fragmentation of global economic governance.

Conclusion

China's next-generation industrial policy represents a fundamental shift in the global economic landscape. Its systemic nature and global reach require a comprehensive response from businesses and governments alike. The window for effective action is narrowing, as Chinese firms entrench their positions and dependencies deepen. Understanding and adapting to this new reality is not a choice but a necessity for maintaining competitiveness and strategic autonomy in an increasingly interconnected world.

This article is based on the report 'China's Next-Generation Industrial Policy' by Rhodium Group, commissioned by the U.S. Chamber of Commerce.