Executive Summary

China's industrial strategy is evolving into a more systemic and pervasive force, extending across all layers of production. This "industrial policy of everything" is accelerating China's trade dominance and deepening global dependence on Chinese supply chains. The report by Rhodium Group, prepared for the U.S. Chamber of Commerce, assesses how these dynamics are reshaping global competition.

Introduction

A decade after Made in China 2025 (MIC25), Beijing is entering a new phase of industrial policy. Rather than retreating in the face of mounting domestic and international pressures, China is doubling down. State intervention across the economy is becoming broader, more integrated, and more consequential for global markets than ever before.

The next-generation industrial policy represents a shift from targeted sectoral intervention to a comprehensive approach that covers mature sectors, foundational supply chain nodes, and frontier technologies alike. This evolution is not merely a continuation of past strategies but a qualitative change in the scale and scope of state involvement.

Background

MIC25 laid the groundwork for many of the objectives now embedded in China's industrial framework. While outcomes were not uniformly successful, China made substantial progress in reducing import dependencies, displacing foreign firms in domestic markets, and building globally competitive positions in sectors such as new energy vehicles and information and communications equipment. Persistent vulnerabilities remain in high-end semiconductors, advanced aerospace, and biomedicine, but the overall trajectory has been one of steady capability building.

Now, Chinese leadership views past policies as largely successful. The current policy frameworks are designed to build on these gains, push mature industries toward higher-value segments, and seize opportunities in disruptive technologies. At the same time, policymakers are adapting to tighter macroeconomic constraints, leading to a recentralization of financial resources and a more coordinated industrial strategy.

Main Analysis

A More Expansive Industrial Policy

China's industrial policy now touches almost every major sector, extending across upstream inputs, industrial equipment, downstream applications, services, and frontier technologies. Critical minerals, wafers, magnets, and other upstream segments are receiving continued support to entrench dominant positions. Even mature industries facing overcapacity and price pressures are being supported to upgrade production technologies, gain market share, and lower costs, rather than cutting capacity.

Services, relatively neglected in earlier rounds, are getting more attention, with visible gains in software, data processing, and drug development. The current moment is seen as a window of opportunity to pull ahead in AI, quantum computing, and future energy systems. These technologies are no longer confined to R&D; they are now supported through public procurement and state-owned enterprises, driving demand and adoption at scale.

Refining the Policy Playbook Under Tighter Constraints

This expansion occurs amid slowing growth, weak domestic demand, rising fiscal pressures, and declining efficiency of capital allocation. Beijing is adapting by tightening control over fiscal spending, bank lending, capital markets, and state investment funds. Government guidance funds are consolidated, bank lending is steered through targeted relending facilities, and redundant tax and fiscal subsidies are being culled. After decades of liberalization, non-market considerations are being re-inserted into the DNA of banks, SOEs, and investment markets.

This approach may prolong the potency of industrial policy but risks diluting its effectiveness. Evidence of strain is visible in declining corporate profitability, weakening private investment, and slowing R&D growth in key sectors. Over time, these dynamics could weigh on China's productivity and long-term growth potential.

A New Phase of Global Impact

The global impact of China's industrial and economic policies has accelerated in the past three years and will likely continue to expand rapidly. The combination of sustained policy support and weak domestic demand has driven a rapid expansion of China's manufacturing trade surplus, described by many as "China Shock 2.0." Since 2019, the surplus in manufacturing goods has roughly doubled to around $2 trillion, reflecting both rising exports and successful import substitution.

While market share gains were most dramatic in electric vehicles and clean energy, the expansion is increasingly concentrated in upstream segments such as chemicals, machinery, and industrial equipment—areas traditionally dominated by advanced economies. Chinese inputs and capital goods are increasingly embedded in products manufactured and exported by third countries, creating indirect dependencies that are difficult to detect and manage.

Measured in volume, China's market share gains are roughly twice as large as in value terms for many products, as falling producer prices mask the true pace of expansion. The number of products where China accounts for more than 50% of global exports has nearly doubled, deepening global reliance on Chinese supply chains across a growing number of critical products.

Global Significance

The evolution of China's industrial policy has profound implications for the global economy, international business, trade, and investment. The "China Shock 2.0" is not limited to one sector but spans upstream and downstream markets, affecting manufacturers, exporters, and policymakers worldwide. Advanced economies that previously dominated these segments now face intensified competition, with implications for their industrial capacity and strategic autonomy.

Indirect dependencies through third-country supply chains complicate risk assessments. Firms and governments may inadvertently rely on Chinese inputs in ways that are not immediately evident. This creates vulnerabilities that require new tools for monitoring and mitigation.

The policy of "industrial policy of everything" also affects global governance. Beijing is increasingly using policy tools to entrench its dominant position and counter foreign diversification strategies. This raises questions about the effectiveness of existing trade remedies and the need for coordinated international responses.

Strategic Insights

For businesses, the key takeaway is the need to reassess supply chain exposure. Volume-based market share gains mean that value-based assessments may understate China's influence. Companies should map their direct and indirect dependencies on Chinese upstream inputs and capital goods, and consider resilience strategies.

For policymakers, the report emphasizes that the window for effective action is finite. The record of the past decade shows that early warnings were measured, not alarmist, and delayed responses have led to lost competitiveness and strategic vulnerabilities. Governments need to develop evidence-based strategies that address both immediate competitive pressures and long-term structural changes.

For investors, the recentralization of financial resources signals that capital allocation is increasingly driven by strategic priorities, not market returns. This may affect the performance of state-affiliated entities and the overall efficiency of China's financial system.

Future Outlook

Over the next 3 to 10 years, China's industrial policy is likely to continue expanding, but its effectiveness may diminish due to overextension. The strain on fiscal resources and financial markets could lead to declining returns on state investment. However, in the near term, China's industrial push is expected to intensify, particularly in AI, clean energy, and advanced manufacturing.

The global impact will grow as Chinese firms expand internationally, not just through exports but through direct investment and the establishment of global value chains. This will create both challenges and opportunities for host countries, requiring careful policy calibration.

The long-term implications for China's economic growth are uncertain. Success in industrial upgrading could offset demographic and debt headwinds, but the rising role of the state may crowd out private initiative and innovation. The outcome will depend on how effectively China balances strategic ambitions with market principles.

Conclusion

China's next-generation industrial policy is a defining feature of the global economic landscape. The trajectory is clear: broader state intervention, deeper supply chain integration, and accelerating global influence. Decision-makers in government, industry, and multilateral institutions must respond based on credible analysis and a realistic assessment of the competitive dynamics. The lessons from the past decade—that early warnings are often justified and that the window for action is finite—should guide future strategies.

Key Takeaways

• China's industrial policy has evolved from targeted sectoral intervention to a comprehensive "industrial policy of everything."
• The manufacturing trade surplus has roughly doubled to $2 trillion since 2019, driven by sustained policy support and weak domestic demand.
• China's market share gains are twice as large in volume terms as in value terms, understating the true impact.
• Global reliance on Chinese supply chains is deepening, with the number of products where China holds over 50% of global exports nearly doubling.
• Beijing is recentralizing financial resources to fund strategic priorities, potentially affecting economic efficiency.
• Businesses and governments should reassess supply chain dependencies and act within a finite policy window.

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Sources:

• China's Next-Generation Industrial Policy - Rhodium Group