China’s Industrial Policy in the 15th Five-Year Plan: Everything Beyond Subsidies

China’s 15th five-year plan (FYP) suggests that industrial policy is no longer just one policy area among many but rather an organizing logic for the whole economy. Beijing is increasingly aligning domestic substitution, enterprise innovation, anti-involution, and infrastructure development around the goal of building a more self-reliant industrial system.

State support is becoming harder to quantify yet more entrenched through a broad transformation of how China structures competition, allocates risk, and channels value toward domestic firms.

Localization beneath the factory floor

The 15th FYP projects a harsh external environment characterized by severe supply chain disruptions and intense geopolitical competition. Against this backdrop, Beijing is no longer treating localization as a production-level issue, instead targeting the full industrial stack that sits beneath and enables production processes.

The plan prioritizes the localization of high-end new materials, industrial software, machine tools, and major technical equipment — areas where localization has fallen short of earlier policy ambitions like Made in China 2025. Given recurring foreign export controls on products like semiconductors and lithography machines, Beijing now views those layers in the industrial stack as strategic vulnerabilities that must be localized on an accelerated timeline.

The plan also extends the push for “autonomous and controllable” supply chains from the information and communications technology sector to the broader economy. If successful, this approach could reduce overall supply chain exposure to foreign sanctions, increase domestic value creation, and enable Chinese firms to innovate within more self-contained ecosystems.

However, localization driven by policy timelines rather than technical readiness also risks privileging “good enough” incumbents over best-in-class foreign inputs, weakening the efficiency of upgrading.

For businesses operating at these “chokepoint” layers, substitution pressure may increase through government and SOE procurement preferences, domestic product standards, and merger and antitrust reviews that increasingly serve industrial policy objectives.

Anti-involution enters the plan with a regulatory push

For the first time, managing involution-style competition has been incorporated into an FYP. Policymakers now view involution as not only a macroeconomic challenge but also a barrier to industrial upgrading, as firms caught in race-to-the-bottom competition lack the margins needed to reinvest in the smart, green, and service-oriented manufacturing Beijing hopes to promote.

Recent official discussions frame anti-involution as both curbing excess capacity and rectifying weak governance across the whole supply chain to redesign the way industries compete. This approach is translated across multiple regulatory channels:

• The State Administration for Market Regulation elevated anti-involution across its antitrust, price-supervision, and fair-competition agendas;
• The Ministry of Justice identified addressing local protectionism and unauthorized subsidies as regulation-making priorities to give enforcement more teeth;
• The Ministry of Finance (MOF) canceled or phased out export tax rebates of photovoltaic and phased battery products to force firms up the value chain; and
• The Ministry of Industry and Information Technology guided the establishment of a three-billion-yuan acquisition fund to acquire low‑efficiency polysilicon capacity while pressing the EV industry against below-cost dumping and overdue supplier payments.

This regulatory push may ease pressure on foreign firms from low-cost undercutting and oversupply in commoditized segments. However, it is also likely to produce fewer, better capitalized, and more technologically capable Chinese rivals in higher-value segments that multinationals have traditionally led. Beijing also recognizes that policy cannot quickly replicate the brand trust or technical credibility that many foreign firms have already established. Regulators are raising the bar for foreign firms to justify their premium positioning, shifting competitive pressure toward demonstrating innovation, quality, and brand credibility.

Bridging the valley of death: the state as the ultimate risk absorber

The 15th FYP calls for securing first-mover advantages in the “commanding heights of technological development,” signaling that Beijing will direct national innovation resources toward the most strategically important — and also the riskiest — parts of the technology landscape. Firms in these frontier sectors often face the “innovation valley of death,” where R&D is capital-intensive, failure rates are high, and commercialization is slow.

The government plans to absorb much of this uncertainty that private investors and customers typically avoid, positioning itself as the lead incubator, investor, insurer, and first customer for domestic tech firms. According to the plan, the government will support commercialization through:

• Data pools
• Talent programs
• Pilot-testing platforms and application scenarios
• Expanded financing channels and “patient capital”
• A national technology insurance system
• Increased government procurement of indigenous innovation products

While this approach risks misallocating capital, it gives Chinese firms a better chance of surviving and scaling faster than market conditions alone would allow.

Funding is already being deployed. In late December, the MOF and the National Development and Reform Commission launched a 100-billion-yuan ($14.3 billion) National Venture Capital Guidance Fund financed through ultra-long-term special government bonds, with at least 70% directed to seed and startup firms in emerging and future industries. The insurance sector also provided eight trillion yuan ($1.14 trillion) in risk coverage for science and tech firms in 2025, with premiums growing 44% year-on-year.

For foreign companies, this state-backed commercialization architecture presents a mixed outlook. On the one hand, they can no longer assume that thin margins, long timelines, technical immaturity, or a lack of bankable customers will naturally constrain Chinese rivals’ growth. On the other hand, Beijing’s frontier tech push is creating new markets and areas for foreign companies to sell in, source from, and manufacture in. The latest Encouraged Catalog for Services Import, for example, effectively publishes a roadmap for where Beijing wants foreign firms to support development in emerging and future industries. As Premier Li Qiang’s remarks at the China Development Forum suggest, Beijing now sees growth coming from the creation of new markets via technological advancement rather than merely competing in existing ones.

AI infrastructure: shared inputs, unequal access

The 15th FYP bets on access to shared AI compute infrastructure and talent to make innovation cost-effective and scalable, but the buildout has been locally driven and deeply fragmented. Local government investment in data centers increased tenfold over two years to 24.7 billion yuan ($3.4 billion) in 2025, yet utilization rates are estimated at just 20% to 30%, far below the government’s target of 60%.

Beijing now recognizes AI diffusion constraints extend beyond chips to compute efficiency itself. The plan’s response is consolidation, pushing for a national computing power network, public cloud, and integrated data resource to pool demand and lower costs. In practice, that means shifting the provision of computing networks toward larger, utility-like platforms run by SOEs. For example, China Telecom, one of China’s largest SOE network operators, recently announced it would boost spending on AI compute infrastructure by 26% in 2026. But the transition is unlikely to be frictionless, as private hyper-scalers also have strong commercial incentives to build and control their own infrastructure.

For multinationals, the key issue to watch is equal access to state-backed compute resources. Foreign companies still face restrictions on direct cloud operations and cross-border data transfers, and uncertain access to nationally coordinated compute resources. Where domestic firms access these resources with fewer barriers, the playing field tilts even when formal market access appears unchanged.

What’s next

USCBC expects regulators and local governments to start releasing drafts for comment on sectoral- and provincial-level FYPs in the coming months. These plans will likely provide more detailed guidance on development priorities and implementation. We encourage members to monitor plans relevant to their China footprints.