China's Next-Generation Industrial Policy: Strategic Implications for MENA Economies

Executive Summary

China's industrial policy has entered a new phase. What began a decade ago with Made in China 2025 — a targeted plan to upgrade strategic sectors — has evolved into a far more expansive and systemic approach. State intervention now spans everything from upstream inputs like critical minerals and industrial equipment to downstream services and frontier technologies. Beijing is doubling down despite domestic and global pressures, and the consequences are reverberating across global value chains.

For the Middle East and North Africa, this shift carries both strategic risks and opportunities. As China deepens its dominance in manufacturing and technology, MENA economies pursuing diversification must recalibrate their trade policies, investment strategies, and industrial development plans. This article examines the evolution of China's next-generation industrial policy and what it means for the region.

Introduction

In late 2015, the U.S. Chamber of Commerce identified and translated the foundational planning document behind Made in China 2025 (MIC25). A decade later, China is not retreating from industrial policy — it is expanding it. According to a comprehensive report by Rhodium Group, commissioned by the U.S. Chamber, China's strategy has become broader and more consequential for global markets than ever before.

Two overarching conclusions emerge. First, China's industrial policy is becoming more systemic and pervasive, extending across all layers of production. Second, these domestic dynamics are accelerating China's trade dominance, deepening foreign dependencies on Chinese supply chains, and fueling the rapid global expansion of Chinese firms. For MENA economies, this represents a defining moment in their own economic transformation journeys.

Main Analysis

From targeted intervention to 'industrial policy of everything'

Made in China 2025 focused on a defined set of strategic emerging industries. The next-generation policy framework, however, extends across mature sectors, foundational supply chain nodes, and frontier technologies alike. Beijing views past policies as largely successful and is now pushing mature industries toward higher-value segments while investing heavily in new products and technologies.

This includes dominant positions in critical upstream segments — critical minerals, wafers, and magnets — where China already holds significant global market share. Policymakers are seeking to extend this dominance across a broader range of industrial products.

Sustained support despite overcapacity

Even in mature industries facing overcapacity and severe price pressures, Beijing is providing continued support. Firms are encouraged to upgrade production technologies to gain market share and lower costs, rather than cut capacity. While authorities acknowledge imbalances, policy responses have fallen short of structural reforms needed to shift China's growth model. This has implications for global prices and trade flows.

Services and frontier technologies gain attention

Services, relatively neglected in earlier rounds, are now receiving more policy attention, with gains in software, data processing, and drug development. Meanwhile, disruptive technologies like artificial intelligence, quantum computing, and future energy systems are being mobilized through public procurement and state-owned enterprises, creating demand at scale. AI has emerged as a central pillar of China's industrial strategy.

A more constrained macroeconomic environment

China faces slowing growth, weak domestic demand, rising fiscal pressures, and declining capital allocation efficiency. Rather than scaling back intervention, Beijing is adapting by recentralizing and coordinating financial resources. Government guidance funds are being consolidated, bank lending is steered through targeted relending facilities, and wasteful subsidies are being culled. While this may prolong the potency of industrial policy, it carries long-term risks for economic vitality.

Accelerating global impact

The global impact of China's industrial and economic policies has accelerated in the past three years. The manufacturing trade surplus has roughly doubled since 2019 to around $2 trillion. Market share gains are increasingly concentrated in upstream segments like chemicals, machinery, and industrial equipment — areas traditionally dominated by advanced economies. Moreover, Chinese inputs and capital goods are increasingly embedded in products manufactured by third countries, creating indirect dependencies that are difficult to detect.

The number of products where China accounts for more than 50% of global exports has nearly doubled, deepening global reliance on Chinese supply chains.

Regional Impact

China's next-generation industrial policy will have significant consequences for the MENA region.

Trade and supply chains: As China expands its share in global manufacturing, MENA countries that export raw materials and energy face shifting demand patterns. China's influence over critical minerals and industrial inputs could affect the region's own industrial ambitions, particularly in downstream processing and manufacturing.

Economic diversification: GCC countries and other MENA economies are actively pursuing diversification away from hydrocarbons. China is a key partner and competitor in this process. Its dominance in renewable energy technology, electric vehicles, and digital infrastructure creates both opportunities for collaboration and risks of dependency.

Infrastructure and investment: Chinese investments in MENA infrastructure, logistics, and industrial parks could accelerate under the new policy. However, deeper Chinese involvement may also raise concerns about debt sustainability and strategic autonomy.

Competitive pressures: Chinese manufactured goods, often priced aggressively due to overcapacity, could compete with emerging local industries in MENA. This is particularly relevant for countries seeking to build their own manufacturing bases, such as Egypt, Saudi Arabia, and the UAE.

Regional integration: China's expanding trade networks may either complement or compete with regional integration efforts like the Gulf Cooperation Council (GCC) customs union or Pan-Arab trade agreements. MENA policymakers must navigate these dynamics carefully.

Strategic Implications

For executives and investors, several key implications merit attention:

• Monitor trade data: Watch China's market share gains in upstream sectors — these will shape global pricing and supply availability for inputs critical to MENA industries.
• Diversify supply chains: Given China's dominance, MENA companies should assess their exposure to Chinese suppliers and consider dual-sourcing strategies.
• Leverage opportunities: China's push into AI, renewables, and infrastructure offers potential for joint ventures and technology transfer in MENA markets.
• Policy response: Governments should update their investment policies to protect local industries while attracting beneficial Chinese investment.

For policymakers, the strategic priority is to balance engagement with China against the need to preserve diversification options. This may involve building resilience through regional partnerships and promoting local value addition.

Future Outlook

Over the next 3–5 years, several trends are likely to shape the MENA-China relationship:

• Deepening industrial ties: Chinese investment in MENA energy, logistics, and manufacturing is expected to grow, particularly in renewable energy and hydrogen.
• Technology transfer tensions: As China seeks to lead in AI and other frontier technologies, MENA countries may face difficult choices about technology adoption and data governance.
• Supply chain reconfiguration: Global efforts to diversify away from China could create new roles for MENA as a manufacturing and logistics hub, particularly in nearshoring opportunities between Asia and Europe.
• Government guidance funds: As China consolidates its development finance, MENA projects may find new funding channels, but with conditionality tied to Chinese standards and procurement.

MENA economies will need to strengthen their negotiating capacity and domestic institutional frameworks to maximize benefits and mitigate risks from China's expanding industrial state.

Conclusion

China's next-generation industrial policy is reshaping global production and trade patterns in ways that extend far beyond its borders. For the MENA region, the implications are profound. While opportunities for collaboration and investment are considerable, so are the risks of dependency and competitive pressure. The region's ability to navigate this evolving landscape will depend on clear-eyed strategic analysis and proactive policy design.

Key Takeaways

• China's industrial policy has shifted from targeted sectoral intervention to an all-encompassing 'industrial policy of everything.'
• China's manufacturing trade surplus has roughly doubled since 2019 to around $2 trillion.
• China is expanding dominance in upstream segments such as chemicals, machinery, and industrial equipment.
• The number of products where China accounts for over 50% of global exports has nearly doubled.
• For MENA, this underscores the urgency of economic diversification and supply chain resilience.

Sources

• Rhodium Group, China's Next-Generation Industrial Policy (report prepared for the U.S. Chamber of Commerce). Access report