Four trends to watch as China's industrial policy evolves

While industrial policy has always played a role in China’s economic reform, it “took a qualitative turn” only around 2014. The release of the “Made in China 2025” initiative in May 2015 marked a defining, comprehensive shift and the beginning of a new era of Chinese industrial policy. The following decade witnessed nationwide deployment of industrial policies of unprecedented scale and sophistication, aimed at promoting innovation, technological leadership, manufacturing capability and global competitiveness in critical and frontier sectors. The outcomes were mixed: while phenomenal growth was achieved in some targeted sectors (such as electric vehicles (“EVs”) and renewables), major weaknesses remain in others, such as semiconductors (despite some recent progress).

Today, industrial policy is inextricably embedded in China’s economic planning and modernization. The next phase of China’s industrial policy will carry on these long-term goals and commitments envisioned in the “Made in China 2025” initiative while exploring new paths to advance economic transformation and strategic adaptation.

This combination of policy continuity and adaptation is evident from the Recommendations for the Fifteenth Five-Year Plan (“Recommendations”) adopted at the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China on 23 October 2025. This high-level blueprint outlines overarching goals, fundamental principles, key strategies and missions for the upcoming five-year period of 2026-2030 to guide the formulation of a detailed plan to be finalized in March 2026.

The Recommendations define the 15th Five-Year Plan period as a critical transitional phase in China’s economic development and modernization. A key objective is to solidify and expand established industrial strengths and advantages while breaking through major constraints and bottlenecks to lay a solid foundation for deepening systematic reforms and consolidating high-quality, sustainable growth.

Accordingly, China’s industrial policy is expected to continue shifting toward strategic and emerging sectors, R&D and consumption, modernizing traditional manufacturing industries and linking more closely with national security. Given the rapid rise of industrial policies worldwide, China’s industrial policy will similarly prioritize national interests over international commitments when necessary to pursue its development goals and respond to geopolitical challenges. At least four major, interrelated trends are unfolding:

China’s industrial policy will further concentrate on designated strategic and emerging sectors such as advanced manufacturing, green technologies and AI. The list of priorities are likely to remain stable. This shift may be supported by reallocating resources away from traditional manufacturing sectors such as steel and aluminium.

China will continue aligning industrial policy with economic security, further integrating security objectives with economic planning. This trend emphasizes indigenous innovation, technology self-sufficiency, supply chain resilience and economy-wide stability and sustainability — anchored in internal circulation and complemented by external circulation. President Xi’s reiteration of boosting domestic consumption since 2015 speaks to China’s longstanding strategy and determination to maximize the potential of the domestic market as the engine for economic growth and a key approach to counteract geopolitical shocks.

China will continue modernizing traditional manufacturing sectors that sit at the backbone of the Chinese economy through structural upgrade, innovation and digitalization, with less focus on quantity of outputs but quality, efficiency and sustainability. The steel and aluminium industries, mentioned above, are examples where modernization is underway and will increasingly prioritize innovation and sustainable development. Another example is the mining industry where China seeks to balance production and sustainable development through technologies and innovation.

China will undertake a systemic reorientation of industrial policy to focus more on upstream (e.g., R&D) and downstream (e.g., consumption) segments of value chains and away from the midstream (e.g., production). This shift has already occurred in the electric vehicle industry. However, while such a shift aligns with China’s long-term goals of innovation-driven growth and consumption upgrading, it requires significant structural adjustments in production capacity and labour markets. As a result, the transition is likely to proceed incrementally to allow time for firms and local governments to adapt.

The world has entered a new era fraught with geopolitical and strategic shifts supported by sweeping industrial policies. China’s industrial strategy has demonstrated strong continuity for established long-term goals as well as pragmatic adaptation via existing and new approaches in response to changing internal and external situations. As in many other economies, China’s industrial policy is no longer confined to fostering the economic performance of chosen industries but is closely linked to non-economic imperatives ranging from security and resilience to sustainability and leadership.

External pressure is unlikely to curb China’s industrial policy. If anything, export controls, technology restrictions and geopolitical tensions have strengthened Beijing’s resolve to support strategic industries and accelerate self-reliance. Even when local government budgets tighten, which limits China’s capacity to give subsidies, industrial policy will continue through an array of other regulatory or non-fiscal instruments.

The global implications of China’s industrial policy remain to be seen, subject to implementation and adjustments in the years ahead. The continued surge of China’s trade surplus in 2025 has reinforced the “China shock 2.0” narrative which targets China’s industrial overcapacity. As China deepens its focus on strategic and frontier sectors, overcapacity in advanced manufacturing and green technologies (e.g., EV) will persist. However, such overcapacity may be gradually rebalanced due to China’s pivot towards higher value-added manufacturing and domestic consumption. China’s export control over EVs from 1 January 2026 exemplifies the kind of policies that may be introduced to promote healthy competition and quality and sustainable growth domestically while placating external criticisms and counteraction.

A final note: the government can set direction, but outcomes hinge on firm responses. China’s experience with industrial policy shows that success depends not only on policy design, but on whether firms choose to engage. Some partner closely with the state, while others hold back, wary of political obligations and lost flexibility. This heterogeneity in firm responses is critical for understanding when industrial policy succeeds and when it falls short.