China
China’s Industrial Policy: A Formula for Overcapacity
China’s industrial policy success hinges on coordinated support from its Catalogue of Industrial Guidance. While boosting manufacturing, this strategy has led to overcapacity risks, threatening global economic stability. The 2024 catalogue emphasizes critical industries, such as semiconductors, shaping future growth.
The Role of the Catalogue of Industrial Guidance
China’s industrial policy success hinges not only on subsidies but also on a coordination system guided by the central government’s Catalogue of Industrial Guidance. This catalogue directs resource allocation to prioritized sectors, enabling economies of scale that boost manufacturing output. However, this expansive support has led to overcapacity, posing a structural crisis. If the roots of this industrial policy challenge aren’t addressed, the scale that has spurred prosperity could become a significant liability.
Global Manufacturing Dominance
Currently, China produces over 30 percent of the world’s manufactured goods, surpassing the combined output of the United States, Germany, and South Korea. Some scholars argue for a target of 45 percent global capacity, citing scale as a protective measure against U.S. pressure and a means to enhance narrative power in the global economy. While size is indeed a strategic asset, it carries risks that could destabilize market dynamics and trade relations.
Evolving Industrial Policy Framework
At the core of China’s industrial strategy is the Catalogue of Industrial Guidance, established in 1993 and integrated into Five-Year Plans. The latest edition has become more sophisticated, linking various industries and setting clear guidelines. The 2024 version outlines 51 encouraged industries, five restricted, and five prohibited. Notably, the catalogue emphasizes critical sectors like semiconductors, detailing 16 sub-industries essential for technological advancement, ranging from advanced packaging to specialized materials.
