Core thesis
China is not retreating from industrial policy despite slowing growth, overcapacity, weak domestic demand and geopolitical pressure. Instead, Beijing is doubling down and expanding industrial policy into virtually every layer of the economy — what the report calls “industrial policy of everything”.
Key takeaways
1.China’s industrial policy is becoming far broader.
See also: The political economy of modern capitalism
The old Made in China 2025 focused mainly on selected strategic sectors like semiconductors, robotics, electric vehicles (EVs), aerospace and biotech. The new phase expands into:
• Entire supply chains;
• Upstream inputs and machinery;
See also: Two reports, two interpretations of China
• Mature industries (steel, chemicals, shipbuilding);
• Services;
• Frontier technologies (artificial intelligence [AI], quantum, fusion, brain-computing interfaces, embodied AI).
The report argues China now seeks dominance not just in final products, but also in:
• Materials;
• Components;
• Industrial software;
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• Production equipment;
• Industrial ecosystems themselves.
2.China believes its industrial model works.
Despite Western criticism, Beijing sees the last decade as largely successful:
• Import dependence reduced;
• Domestic champions created;
• Global market share gained;
• Supply chains localised;
• EVs, batteries, solar and telecom became globally dominant.
China acknowledges weakness remains in:
• High-end semiconductors;
• Aerospace;
• Advanced biotech;
• Certain industrial technologies.
But rather than abandoning the model, Beijing is refining it.
3.AI is now central to China’s industrial strategy.
AI is treated not just as a tech sector, but as foundational infrastructure for the whole economy.
China is:
• Subsidising AI deployment;
• Using state-owned enterprises or SOEs and government procurement to create demand;
• Embedding AI into manufacturing, logistics, software, EVs, appliances and industrial systems.
The strategy resembles what China previously did with:
• EVs;
• Solar;
• Batteries.
Create domestic scale first, then export globally.
However, the report highlights a major weakness: China’s domestic market monetises software poorly. Chinese users and enterprises are less willing to pay high prices for digital services, compressing AI profitability.
This is pushing Chinese AI firms to:
• Expand aggressively overseas;
• Open-source models; and
• Compete mainly on price.
4.China is upgrading mature industries instead of shrinking them.
Unlike previous cycles where Beijing tried to cut excess capacity, today’s approach is to:
• Upgrade factories;
• Improve technology;
• Increase efficiency;
• Push firms upmarket,
• Gain global market share.
This applies to:
• Steel;
• Petrochemicals;
• Shipbuilding;
• Solar;
• EVs;
• Heavy industries.
The report warns that this likely entrenches overcapacity because China still prioritises production and exports over domestic consumption.
5.China’s global manufacturing dominance is accelerating.
The report describes a “China Shock 2.0”. Since 2019:
• China’s manufacturing surplus has roughly doubled to about US$2 trillion.
• China’s share of global exports in many industrial sectors continues to rise rapidly.
• China increasingly dominates upstream industrial inputs and machinery, not just consumer goods.
A major point:
Traditional trade data understates China’s rise because falling Chinese prices hide the true growth in physical volume.
6.The real strategic risk: dependency
The report argues the bigger issue is not cheap exports alone, but growing dependency on Chinese industrial systems. Examples include:
• Critical minerals;
• Magnets;
• Chemicals;
• Machinery;
• Industrial components;
• Production equipment.
China is also building tools to prevent diversification:
• Export controls;
• Restrictions on critical minerals;
• Legal and regulatory leverage;
• Supply-chain lock-in.
7.Chinese firms are globalising but production remains China-centric.
Chinese companies are investing overseas, but mainly in:
• Assembly;
• Sales;
• Distribution.
Core inputs and manufacturing still largely stay in China. So overseas investments often strengthen China-centred supply chains rather than replace them.
The report’s underlying conclusion
The authors argue that:
• China’s industrial policy is becoming more coordinated, systemic and technologically ambitious.
• Western economies underestimated its effectiveness.
• The window to respond is narrowing.
Without coordinated industrial responses, advanced economies risk:
• Losing manufacturing competitiveness.
• Losing industrial ecosystem.
• Becoming structurally dependent on Chinese supply chains.
The deeper implication beneath the report
The report indirectly reveals something larger: China is no longer merely competing product by product. It is trying to dominate:
• Entire industrial systems;
• Supply chain layers;
• Manufacturing ecosystems;
• Future technology commercialisation;
• Embedded industrial standards.
In other words:
The competition is shifting from “who builds the best products” to “who controls the industrial architecture underneath the global economy”.
Scan QR code for the full Rhodium Group report, “China’s Next-Generation Industrial Policy”.
