China’s Next-Generation Industrial Policy: A Strategic Challenge for Europe

As Beijing intensifies state intervention across the entire economic landscape, European businesses and governments must confront a new era of global competition. The evolution from targeted sectoral strategies to an expansive, all-encompassing industrial policy carries far-reaching implications for Europe’s economic transformation and long-term competitiveness.

Executive Summary

China’s industrial policy has entered a new phase, moving beyond the original Made in China 2025 framework to a more comprehensive and pervasive approach. This “industrial policy of everything” now touches every layer of production—from upstream raw materials to downstream applications, services, and emerging technologies. The result is an acceleration of China’s trade dominance, deepening foreign dependencies on Chinese supply chains, and a global expansion of Chinese firms that challenges established industrial economies. For Europe, understanding these dynamics is critical to shaping strategic responses that safeguard competitiveness and ensure supply-chain resilience.

Introduction

A decade after the launch of Made in China 2025, Beijing is not retreating from industrial policy; it is doubling down. According to recent research by Rhodium Group, commissioned by the U.S. Chamber of Commerce, China’s next-generation industrial policy is more systemic and consequential than its predecessor. The report paints a picture of a state-driven campaign that has achieved many objectives while spawning new vulnerabilities. For Europe, the strategic implications are profound: the competitive pressure on manufacturing, the concentration of critical supply chains, and the acceleration of technological leadership in key sectors all demand a coherent European response.

Main Analysis

A more expansive industrial policy

The shift from targeted sectoral intervention to a comprehensive approach marks a significant evolution. While Made in China 2025 focused on a defined set of strategic emerging industries, current frameworks extend across mature sectors, foundational supply-chain nodes, and frontier technologies. This “industrial policy of everything” reflects Beijing’s assessment that previous policies were largely successful, while also acknowledging persistent gaps in high-end semiconductors, aerospace, and biomedicine. As a result, support now flows into everything from chemicals and machinery to software and artificial intelligence.

Moreover, services—previously underemphasized—are now receiving increased attention. Visible gains in areas such as software development, data processing, and drug development indicate a broadening of strategic priorities. Policymakers also view the current moment as an opportunity to leap ahead in disruptive technologies like AI, quantum computing, and future energy systems, mobilizing the entire economic system to secure an early foothold.

Refining the policy playbook under tighter constraints

This expansion occurs amid a more constrained macroeconomic environment. China faces slowing growth, weak domestic demand, and rising fiscal pressures. Rather than scaling back intervention, Beijing is adapting by recentralizing control over fiscal spending, bank lending, capital markets, and state investment funds. This ensures scarce resources are directed toward strategic priorities, but it risks diluting the effectiveness of industrial policy and reducing resource allocation efficiency. Evidence of strain is visible in declining corporate profitability, weakening private investment, and slowing R&D growth in key sectors—a dynamic that could ultimately weigh on China’s long-term productivity.

A new phase of global impact

The global impact has accelerated in the past three years. China’s manufacturing trade surplus has roughly doubled to around $2 trillion since 2019, a phenomenon often described as “China Shock 2.0.” While market share gains have been most dramatic in electric vehicles and clean energy, the current expansion is increasingly concentrated in upstream segments traditionally dominated by advanced economies, such as chemicals, machinery, and industrial equipment. This creates indirect dependencies that are difficult to detect and manage, as Chinese inputs and capital goods become embedded in products manufactured and exported by third countries.

Crucially, these market share gains are often underestimated in value terms due to falling producer prices. Measured in volume, China’s share gains are roughly twice as large as they appear, signaling a deeper structural shift in global value chains.

Business Impact

For European companies, the immediate impact is heightened competitive pressure in both global and domestic markets. Sectors traditionally led by European firms—such as machinery, chemicals, and automotive supplies—are now facing intense price competition and rapid technological substitution from Chinese rivals. This threatens not only market share but also the viability of manufacturing operations across the continent.

Supply-chain dependencies are also deepening. Europe relies heavily on Chinese imports of critical materials, rare-earth elements, and increasingly on advanced industrial inputs. This exposure creates vulnerabilities that can be exploited in times of geopolitical tension or supply disruptions. For corporate strategists, the imperative is clear: diversify suppliers, invest in resilience, and compete on innovation and quality rather than cost.

Yet there are also opportunities. China’s large market remains attractive, and partnerships in certain advanced technologies can be mutually beneficial. However, companies must balance commercial interests with strategic risk management, ensuring that knowledge and intellectual property are protected.

European Perspective

The European Union has recognized the challenge and is responding with a suite of industrial policy initiatives. The European Chips Act, the Critical Raw Materials Act, and the Net-Zero Industry Act all aim to strengthen Europe’s strategic autonomy. But the scale and speed of China’s industrial policy require a more coordinated and ambitious response. Europe must leverage its own strengths: a single market of 450 million people, a skilled workforce, and leadership in sustainability and innovation.

Cross-border cooperation is essential. The single market provides the scale to support competitive industries, but fragmentation along national lines undermines this advantage. Europe also needs to deepen partnerships with other like-minded economies, especially in areas such as clean energy, digital infrastructure, and advanced manufacturing.

The European Green Deal offers a unique opportunity to create a competitive advantage through sustainability leadership. By setting high environmental standards and fostering innovation in clean technologies, Europe can differentiate itself in global markets and build a resilient, future-oriented industrial base.

Future Outlook

Over the next 3–5 years, China’s industrial policy will continue to shape global markets. European firms should anticipate further shifts in market share, increased trade frictions, and the accelerated digital transformation of Chinese industry. The adoption of AI across manufacturing and services will likely intensify, and China’s dominance in certain critical inputs may be entrenched.

Europe’s response will determine its competitive position. Investment in education, infrastructure, and research and development is critical. The transition to a low-carbon economy must be accelerated, not only as an environmental imperative but as an economic one. By fostering innovation ecosystems and supporting scale-ups, Europe can cultivate the next generation of industrial leaders.

Moreover, Europe must engage constructively with China where possible, while managing risks. A balanced approach that combines cooperation in areas like climate change with prudent safeguards in strategic sectors will be essential.

Conclusion

The evidence is clear: China’s industrial policy is expanding, not receding. The consequences for Europe are profound, but the challenge is manageable if addressed with foresight and determination. The lessons of the past decade—that delayed responses lead to lost competitiveness—should serve as a catalyst for action. Europe must invest in its own industrial strengths, diversify supply chains, and forge a unified strategic approach. The coming years will demand decisive leadership and a shared commitment to economic resilience and transformation.

Key Takeaways

• China’s industrial policy has evolved into a comprehensive “industrial policy of everything,” extending across all layers of production and services.
• China’s global trade dominance is accelerating, with a manufacturing surplus of roughly $2 trillion and market share gains in upstream segments like machinery and chemicals.
• European businesses face heightened competitive pressure and supply-chain dependencies, requiring strategic diversification and investment in innovation.
• The EU must coordinate industrial policy, leverage the single market, and invest in green and digital transitions to maintain competitiveness.
• A proactive response is essential, as history shows that delayed action leads to diminished industrial capacity and strategic vulnerabilities.

Sources

• Rhodium Group, “China’s Next-Generation Industrial Policy,” commissioned by the U.S. Chamber of Commerce, 2026. https://rhg.com/research/chinas-next-generation-industrial-policy