Executive Summary

China’s industrial strategy has evolved from the targeted sectoral goals of Made in China 2025 into a comprehensive and pervasive state intervention program that now touches every layer of the economy. According to a new report by Rhodium Group, "China’s Next-Generation Industrial Policy," Beijing is doubling down on state-led development at a time of mounting domestic and international pressures. The consequences for global markets are profound: accelerating Chinese trade dominance, deepening foreign dependencies on Chinese supply chains, and the rapid expansion of Chinese firms. For Europe, the report underscores the urgency of rethinking its own industrial strategy, as the continent confronts a competitor that is intent on securing dominance across critical technologies, mature industries, and future economic frontiers.

Introduction: Europe’s New Industrial Challenge

The competitive landscape for European industry is being reshaped by forces beyond the continent’s control. Among these, China’s industrial policy stands out as the most consequential. A decade after the introduction of Made in China 2025, Beijing has not abandoned its ambitions. Instead, as the Rhodium Group report makes clear, China’s next phase of industrial policy is more systemic, more expansive, and more globally impactful. European business leaders and policymakers must now assess what this means for the continent’s economic resilience, technological leadership, and long-term prosperity.

Main Analysis: China’s Expanding Industrial Policy

The Rhodium Group assessment, commissioned by the U.S. Chamber of Commerce, paints a detailed picture of how Chinese industrial policy is transforming. It describes the shift from a focus on a defined set of strategic emerging industries to an approach that spans the entire production chain—from upstream inputs and industrial equipment to downstream applications, services, and frontier technologies. The authors, Camille Boullenois, Malcolm Black, and Alessia Caruso, argue that Beijing now pursues an "industrial policy of everything," extending support to mature sectors while simultaneously positioning for leadership in artificial intelligence, quantum computing, and future energy systems.

One of the report’s key findings is the recentralization of financial resources. Facing slower growth, weak domestic demand, and fiscal constraints, Chinese authorities are tightening control over fiscal spending, bank lending, and capital markets. Government guidance funds are being consolidated, and bank lending is increasingly directed through targeted relending facilities. This tactical shift seeks to maximize the effectiveness of industrial policy under tighter resource constraints, but it also risks reducing the overall efficiency of capital allocation and dampening private sector dynamism.

The report also highlights the demand side of industrial policy. Whereas earlier initiatives focused on supply-side measures such as subsidies and R&D support, Beijing is now using public procurement and state-owned enterprises to generate demand for new products and technologies, particularly in areas like AI and advanced computing. This represents a significant escalation in the government’s willingness to fund the commercialization of cutting-edge technologies.

Business Impact: What It Means for European Firms

The implications for European businesses are immediate and far-reaching. China’s manufacturing trade surplus has approximately doubled since 2019 to around $2 trillion, according to the report. This surge is driven by both increased exports and successful import substitution. European companies in sectors such as automotive, machinery, chemicals, and green technology are directly exposed to intensified competition from Chinese firms benefiting from state support and scale.

Moreover, the report warns that dependencies on Chinese supply chains are deepening. In critical minerals, rare earths, and intermediate components, China already holds dominant positions, and planning is underway to extend this across a broader range of industrial products. For European manufacturers, this underscores the strategic need for supply chain diversification, investment in domestic capabilities, and greater cooperation across the Single Market. The report also notes that China is deploying policy tools to deter foreign diversification strategies, adding a layer of complexity to European efforts to reduce dependence.

European Perspective: Strategic Autonomy and Competitiveness

For Europe, the report carries an uncomfortable echo of earlier warnings. In 2016, MERICS predicted that a successful Made in China 2025 would confront foreign companies with a powerful competitor backed by massive state support. The EU Chamber of Commerce in China warned of market distortions and the undermining of fair competition. The Rhodium Group report confirms that these outcomes have largely materialized. Europe’s response, including the European Green Deal and the Chips Act, has begun to address the challenge, but the scale and speed of Chinese intervention demand a more cohesive and strategic approach.

The European Commission’s focus on "open strategic autonomy" is a step in the right direction, but it needs to be backed by credible policy instruments: competition policy that accounts for state-backed rivals, robust trade defense mechanisms, and substantial investment in innovation and industrial capabilities. The diversity of European economies—from Germany’s industrial heartland to the innovation ecosystems of the Nordics—can be a strength, but only if leveraged through deeper cross-border cooperation and a unified single market.

Future Outlook: 3-5 Years Ahead

Over the next three to five years, the trajectory of China’s industrial policy will have determining effects on the global economy and Europe’s position within it. The report anticipates that China’s global impact will continue to expand, with Chinese firms scaling internationally and Beijing using its economic influence to counter foreign diversification efforts. For Europe, several scenarios could unfold:

• Intensified competition in traditional industrial sectors, forcing European firms to innovate and consolidate.
• New opportunities for collaboration in areas where Chinese and European interests align, such as climate mitigation and global infrastructure development.
• Further decoupling in strategic technologies, accelerating the fragmentation of global supply chains and creating both risks and opportunities for European businesses.

Europe’s ability to navigate this landscape will depend on the speed and coherence of its policy response. Investment in digital infrastructure, future technologies, and workforce development will be critical. So too will be a pragmatic approach to economic security that avoids self-defeating protectionism while safeguarding essential capabilities.

Key Takeaways

• China’s industrial policy has evolved from sectoral targeting to an economy-wide strategy, now encompassing services, procurement, and future industries.
• The expansion is being executed through greater state control over financial resources, which may generate short-term gains but raises long-term efficiency concerns.
• China’s manufacturing trade surplus has doubled to roughly $2 trillion since 2019, intensifying competitive pressures on European exporters.
• Deepening dependencies on Chinese supply chains, especially in critical minerals and inputs, pose strategic vulnerabilities for European industry.
• Europe must accelerate its own industrial and innovation policies, leveraging the Single Market to achieve scale and resilience.

Conclusion

The Rhodium Group report provides a pragmatic and evidence-based assessment of China’s next-generation industrial policy. For Europe, it is both a warning and a guide. The window for effective action is finite, but it is not yet closed. By learning from the past decade and responding with strategic coherence, Europe can preserve its competitive edge and shape a global economic order that reflects its values and interests.

Sources

• Rhodium Group, "China’s Next-Generation Industrial Policy" (https://rhg.com/research/chinas-next-generation-industrial-policy)