China's Next-Generation Industrial Policy: A New Phase of State-Led Transformation

Executive Summary

China's industrial policy has entered a new phase. Building on the achievements and shortcomings of Made in China 2025 (MIC25), Beijing is expanding state intervention across the entire economy, from mature industries to frontier technologies. This "industrial policy of everything" is becoming more systemic, with policy tools now extending to services, demand creation, and public procurement. The global impact is accelerating: China's manufacturing trade surplus has roughly doubled since 2019 to around $2 trillion, and foreign dependence on Chinese supply chains is deepening. For the Global South, this evolution presents both opportunities and risks. It offers potential access to technology, infrastructure investment, and new markets, but also raises concerns about over-reliance, debt sustainability, and the space for domestic industrial development.

Introduction

The global industrial landscape is being reshaped by China's latest industrial strategy. A decade after the launch of Made in China 2025, Beijing is not retreating; it is doubling down. The next-generation policy extends beyond targeted sectors to encompass nearly every layer of production, from critical minerals to artificial intelligence. This article examines the evolution of China's industrial policy, its global ramifications, and its specific implications for the Global South.

Background & Context

Made in China 2025 was launched in 2015 with the goal of upgrading China's manufacturing base and reducing dependence on foreign technology. Independent assessments from MERICS, the EU Chamber of Commerce, and the U.S. Chamber of Commerce warned that the strategy could create a powerful state-backed competitor. A decade later, China has achieved many of its goals, particularly in new energy vehicles, information and communications equipment, and critical minerals. However, gaps remain in high-end semiconductors, aerospace, and biomedicine. Now, China is refining its approach, learning from both successes and shortcomings. The leadership sees past policies as largely successful but is keenly aware of persistent technological dependencies in high-tech inputs. The response is not to retreat but to broaden the policy toolkit and deepen state involvement.

Main Analysis

China's new industrial policy is characterized by three trends:

1. Expansion across all sectors: Unlike MIC25's focus on ten strategic industries, current policy frameworks cover mature sectors, upstream inputs, services, and frontier technologies. Beijing is pushing for higher-value production in everything from steel to software, while consolidating control over financial resources to fund these priorities. Even mature industries facing overcapacity are receiving continued support, with firms encouraged to upgrade production technologies rather than cut capacity. Services, previously neglected, are now gaining attention, with visible gains in software, data processing, and drug development.

2. Demand-side tools: The state is moving beyond R&D subsidies to create demand for new products through public procurement and state-owned enterprises. This is especially evident in AI, where government-led adoption is accelerating commercialization. The leadership is willing to fund the commercialization of cutting-edge technologies, using the entire economic system to gain a foothold in future industries.

3. Refining the policy playbook: Under fiscal constraints, China is recentralizing control over bank lending, capital markets, and state investment funds. Government guidance funds are being consolidated, and inefficient local subsidies are being culled. This may make policy more effective in the short term but risks long-term efficiency and innovation. The expansion of industrial policy across an ever-wider set of sectors risks diluting its effectiveness, while increasing state influence on financial markets may further reduce resource allocation efficiency.

The global impact is already visible. China's manufacturing trade surplus has doubled to roughly $2 trillion since 2019, as exports surged and import substitution succeeded. This "China Shock 2.0" is intensifying competitive pressure on other economies, including those in the Global South. Beijing is also deploying policy tools to entrench its dominant position in global value chains and counter foreign diversification strategies.

Development Impact

For the Global South, China's next-generation industrial policy has several implications:

• Trade competition: As China moves up the value chain, it competes directly with emerging economies in sectors like electronics, machinery, and green technology. Countries with similar export structures may face displacement and shrinking policy space for domestic industrialization.
• Investment and infrastructure: Chinese firms and state-backed funds are expanding globally, investing in ports, railways, and digital infrastructure across Africa, Latin America, and Asia. This can support development but may also create debt and dependency concerns, especially when projects are linked to resource extraction.
• Technology access: China's push for self-reliance has led to export controls and competition with the West, but it also offers an alternative source of technology for developing countries, particularly in areas like digital infrastructure, renewable energy, and medical supplies. This could help global value chains diversify, but also carries risks of new forms of technological dependency.
• Industrial policy inspiration: The Global South can learn from China's approach to state-led industrialization, especially its combination of investment in human capital, infrastructure, and strategic coordination. However, adaptation to local contexts is crucial, and the pitfalls of overcapacity and financial repression must be avoided.

Global South Perspective

The Global South is not monolithically affected. Countries with strong commodity exports may benefit from Chinese demand, while emerging manufacturers face pressure. South-South cooperation is deepening, but the terms must be negotiated carefully. Regional institutions like the African Continental Free Trade Area (AfCFTA) and the BRICS New Development Bank could help balance the relationship and ensure that benefits are shared. For many developing economies, China's industrial evolution is a double-edged sword: it can provide affordable technology and investment, but also crowd out local industries and exacerbate asymmetries. The key is to engage China strategically, using its resources to build local capacities and diversify economic partnerships.

Future Outlook

Over the next 5–10 years, China's industrial policy will likely continue to evolve in response to internal and external pressures. The country will pursue self-reliance in critical technologies, expand its presence in the Global South, and leverage its economic weight to shape global standards. For emerging economies, the challenge is to engage with China's industrial strength while building their own capacities and maintaining policy sovereignty. The coming decade will see intense competition for technological leadership and market access. The Global South must position itself as an active participant, not just a passive recipient, by strengthening regional integration, investing in innovation ecosystems, and negotiating more favorable terms in international partnerships.

Conclusion

China's next-generation industrial policy represents a new chapter in state-led development. Its systemic and pervasive nature has implications for the entire global economy. For the Global South, the key is to adopt a strategic approach: leveraging opportunities for investment and knowledge transfer while safeguarding against dependency and ensuring that domestic industries can thrive. International cooperation and robust regional frameworks are essential to navigate this complex landscape. The choices made today will determine whether the Global South becomes a beneficiary or a casualty in the new era of industrial policy.

Key Takeaways

• China's industrial policy has expanded from targeted sectors to nearly all economic domains, becoming a systemic "industrial policy of everything."
• The strategy is accelerating China's trade dominance and deepening global dependencies on its supply chains.
• Global South countries face a mix of competitive pressure and cooperation opportunities, depending on their economic structure and strategic positioning.
• Policy responses should include export diversification, regional integration, and careful management of Chinese investment and technology transfer.
• The long-term outcome will depend on how both China and the Global South adapt to the changing global economic order.

Sources

• Rhodium Group, "China's Next-Generation Industrial Policy" – Link