China’s Next-Generation Industrial Policy: Strategic Implications for the Gulf

Executive Summary

China's industrial policy has entered a new phase, becoming more systemic and pervasive across the economy. Unlike the earlier Made in China 2025 strategy, which targeted specific sectors, Beijing now deploys state intervention across mature industries, foundational supply chains, and emerging technologies. This "industrial policy of everything" is accelerating China's trade dominance and deepening global dependencies on Chinese supply chains. For Gulf economies pursuing diversification, these developments present both challenges and opportunities. This analysis examines how China's next-generation industrial policy affects regional business strategy, investment dynamics, and economic transformation—and what Gulf policymakers can learn from Beijing's approach.

Introduction

The Gulf Cooperation Council (GCC) states are in the midst of ambitious economic transformation programs designed to reduce dependence on hydrocarbons. From Saudi Arabia's Vision 2030 to the UAE's Operation 300bn and Qatar's National Vision 2030, the region is investing heavily in industrial development, technology, and infrastructure. Yet the success of these strategies will be shaped not only by domestic implementation but also by the global competitive environment. One factor that has received insufficient attention is the evolution of China's industrial policy. As Beijing intensifies its state-led push across manufacturing and technology, the Gulf's diversification agenda faces new competitive pressures and strategic choices.

A decade after Made in China 2025, China is not retreating but doubling down on state intervention. According to a new report by Rhodium Group, prepared for the U.S. Chamber of Commerce, China's industrial strategy has transformed into an "industrial policy of everything." This approach extends across all layers of production—from upstream inputs and industrial equipment to downstream applications and frontier technologies. The report highlights that these dynamics are accelerating China's trade dominance, deepening foreign dependencies on Chinese supply chains, and spurring the rapid global expansion of Chinese firms.

For the Gulf, the implications are profound. China is the region's largest trading partner and a major investor in infrastructure and technology. At the same time, Gulf states are seeking to build their own industrial and tech ecosystems. Understanding China's next-generation industrial policy is therefore essential for businesses and policymakers across the GCC.

The New Phase of China's Industrial Strategy

The Rhodium Group report, titled China's Next-Generation Industrial Policy, describes a significant evolution in Beijing's approach. Where Made in China 2025 focused on a defined set of strategic emerging industries, current policy frameworks are far more expansive. The state is intervening in mature sectors, foundational supply chain nodes, and frontier technologies alike. Chinese leadership views past policies as largely successful and is now pushing mature industries toward higher-value segments while simultaneously backing disruptive technologies like artificial intelligence, quantum computing, and future energy systems.

Evidence of this expansion is visible in several areas:

• Critical minerals and upstream inputs: China already holds dominant positions in critical minerals, wafers, and magnets. Policymakers are now seeking to extend this dominance across a broader range of industrial products.
• Mature industries: Rather than cutting overcapacity, Beijing is supporting firms to upgrade production technologies, lower costs, and gain market share. This has contributed to a sharp rise in China's manufacturing trade surplus, which roughly doubled to $2 trillion since 2019.
• Services: Software, data processing, and drug development are now receiving attention after being relatively neglected in earlier rounds of industrial policy.
• Demand creation: Beyond R&D support, Beijing is using public procurement and state-owned enterprises to generate demand for new technologies at scale. AI has emerged as a central pillar of this strategy.

The report also notes that this expansion is occurring under tighter macroeconomic constraints. China faces slowing growth, weak domestic demand, and rising fiscal pressures. In response, authorities are centralizing control over financial resources—bank lending, capital markets, and state investment funds—to direct scarce resources toward strategic priorities. While this may prolong the effectiveness of industrial policy, it risks diluting its efficiency and undermining China's long-term economic vitality.

What This Means for the Gulf

The Gulf's economic diversification strategies are being implemented in a world where China is increasingly dominant in manufacturing and technology. This creates several direct and indirect effects for the region.

Trade and Competitive Pressures

China's manufacturing trade surplus is flooding global markets with competitively priced goods. For Gulf states attempting to build non-oil export industries, this presents a formidable challenge. New entrants in petrochemicals, aluminum, or logistics must compete with Chinese producers that benefit from massive state support and economies of scale. The risk of "deindustrialization" due to cheap imports is particularly acute for nascent manufacturing sectors in the GCC.

However, the picture is not purely negative. The Gulf's strategic location between East and West offers opportunities to serve as a re-export hub for Chinese goods aimed at African and European markets. Additionally, Chinese overcapacity in some sectors may lead to foreign direct investment in Gulf facilities as a way to circumvent trade barriers.

Investment and Supply Chain Dependencies

China is a major investor in Gulf infrastructure, ports, and technology. Its Belt and Road Initiative has deepened economic ties. Yet the new phase of Chinese industrial policy may increase Gulf dependencies on Chinese supply chains for critical inputs, such as rare earths, solar panels, and battery technology. As Gulf countries invest in renewable energy and manufacturing, they must assess the concentration risk of relying on Chinese suppliers.

Sovereign wealth funds in the Gulf are also active investors in China. The UAE's Mubadala, Saudi Arabia's PIF, and Qatar Investment Authority hold stakes in Chinese technology companies and funds. China's recentralization of investment markets may affect the terms of these investments and the ability to extract value.

Lessons for Gulf Policymakers

The Rhodium Group report offers lessons for Gulf states seeking to develop their own industrial policy frameworks. Key takeaways include:

• Targeted approach: While China's policy is broad, Gulf countries with smaller markets should focus on select niches where they have comparative advantages, rather than trying to cover everything.
• Coordination: Beijing's recentralization of financial resources ensures alignment with national priorities. Gulf states could improve coordination between sovereign wealth funds, development funds, and local banks to support strategic sectors.
• Innovation ecosystem: China is using demand-side interventions to help new technologies scale. Gulf governments can similarly leverage procurement and state-owned enterprises to support homegrown innovations.
• Trade strategy: Gulf diversification should not only focus on production but also on securing resilient supply chains, potentially by hosting Chinese manufacturing overcapacity in joint ventures.

Business Impact

For Gulf-based companies, the intensification of China's industrial policy has direct implications. Businesses competing with Chinese imports will need to differentiate through innovation, quality, and service rather than cost. Those operating in sectors where China is dominant—such as solar energy or digital infrastructure—should consider partnerships or technology licensing to access world-class capabilities.

At the same time, Chinese firms' global expansion creates opportunities for Gulf companies to serve as partners or agents. The Gulf's business environment is attractive to Chinese enterprises due to its low taxes, logistics infrastructure, and access to multiple markets. Joint ventures and strategic alliances are likely to increase, particularly in advanced manufacturing and clean energy.

Investors must also closely monitor the regulatory shifts in China. The re-centralization of capital markets and state investment funds may alter the risk-return profile of Chinese assets. Diversification remains key.

Regional Perspective

Across the GCC, the response to China's industrial policy is likely to vary:

• Saudi Arabia: As the region's largest economy and home to the most ambitious industrial strategy, the Kingdom is both a competitor and a partner to China. Its focus on high-tech manufacturing and mining may intersect with Chinese interests in critical minerals and energy transition technologies.
• UAE: The UAE's role as a commercial and logistics hub positions it to benefit from Chinese trade networks. The Dubai Multi Commodities Centre and other free zones could attract Chinese investments looking to expand into emerging markets.
• Qatar: With a focus on gas and petrochemicals, Qatar is less directly impacted but is investing in manufacturing and logistics. It may see opportunities in serving as an energy supplier to China, which remains a major importer of LNG.
• Kuwait and Bahrain: These smaller economies may feel the competitive pressure more acutely. Their diversification plans could be supported by Chinese technology and investment, but they must avoid becoming overly dependent.
• Oman: With its strategic port at Duqm, Oman is positioning itself as a logistics hub. Chinese investment in infrastructure could enhance this, but Oman needs to ensure that its industrial development is not crowded out by Chinese products.

GCC-wide coordination on industrial policy and supply chain resilience would strengthen the region's bargaining position. The recently established GCC Industrial Integration Committee could play a role in devising a unified strategy for dealing with Chinese competition.

Future Outlook

Looking forward three to five years, the trajectory of China's industrial policy will remain a critical external factor for Gulf economies. Several trends are likely:

• Continued expansion: China's manufacturing trade surplus and global market share will likely keep growing, intensifying competition for Gulf industries.
• Technology cooperation: Chinese leaders are openly seeking to move from exports to global standards and investments. Gulf states may become testbeds for Chinese technologies in energy, smart cities, and AI.
• Supply chain restructuring: The Gulf could emerge as a hub for activities such as final assembly, logistics, and services that complement Chinese production.
• Policy adaptation: Gulf governments will need to continuously refine their diversification strategies to dodge competitive threats and seize collaboration opportunities.

The Rhodium Group report warns that China's model may struggle with efficiency and productivity in the long run. If that occurs, the Gulf could benefit from a more balanced global system. But over the next five years, Beijing's industrial policy is a force that Gulf businesses and governments must engage with strategically.

Conclusion

China's next-generation industrial policy is transforming global economic dynamics. For the Gulf, it presents both a challenge and an opportunity. By understanding the scope and direction of Beijing's state-led push, Gulf executives and policymakers can adjust their strategies to protect their markets, attract beneficial investment, and carve out profitable niches in the changing global economy. The key is not to emulate China's industrial policy wholesale, but to learn from its strengths and avoid its pitfalls—while maintaining a clear eye on the region's own long-term development goals.

Key Takeaways

• China's industrial policy has evolved into a broad, systemic approach that touches all sectors of its economy, with global consequences.
• The Gulf's diversification strategies must account for China's dominance in manufacturing, critical minerals, and emerging technologies.
• Chinese overcapacity and global expansion create both competitive pressures and investment opportunities for Gulf businesses.
• Gulf states should adopt targeted industrial policies, improve coordination among state resources, and invest in innovation to remain competitive.
• The GCC can strengthen its position by pursuing regional integration and supply chain resilience.
• Over the next 3–5 years, China-Gulf relations are likely to deepen, requiring proactive strategy from regional policymakers and business leaders.

Sources

• Rhodium Group, "China's Next-Generation Industrial Policy," prepared for the U.S. Chamber of Commerce. Link