China’s new industrial policy focuses on frontier technology fields

China’s leadership has placed a new industrial policy initiative at the top of its economic agenda. The New Productive Forces (xinzhi shengchanli) initiative has gained increasing mention in Politburo speeches since President Xi Jinping initially presented the idea in September 2023. The novel industrial policy initiative is more ambitious than any of China’s earlier efforts at technological self-sufficiency. The use of “new productive forces” would free China to pursue its aspiration of becoming a global hub of futuristic technologies by 2027.

Industrial policy embodies the party’s vision of achieving early-mover dominance in a number of sectors with the help of disruptive technologies. China seeks continuous technological breakthroughs in such frontier fields as advanced manufacturing, artificial intelligence, new materials, hydrogen economy, commercial space, and healthcare. The New Productive Forces initiative seeks to support frontier technologies in fields where virtually no international competition yet exists or other countries have yet to develop significant knowhow. The new industrial policy would help drive economic growth and establishment of new industrial clusters.

It remains unclear exactly how the new industrial policy is to be implemented and funded. At the more general level, China’s financial sector has been directed to support innovative firms, while state enterprises have been commanded to step up their R&D efforts. A few concrete measures have been announced. For example, the PBoC declared the creation of a 500-billion-yuan programme to promote commercial bank very low-interest lending (1.75 %) to small and medium-sized tech firms. Local governments have been encouraged to focus on innovation-supporting infrastructure such as data centres. The education ministry aims to deepen its curricula in specialist technical skills. While sources of financing and funding formats have yet to be specified, innovation is always a risky proposition. Investment schemes often go south and only a tiny number of projects ever hit pay dirt. Even if the strategy has potential to create new possibilities for the Chinese economy and international cooperation, implementation will be complicated.