ABSTRACT
After a long period of high economic growth and industrialization, the Chinese economy has recently entered a period of relatively low economic growth. Behind the past remarkable performance lies the government’s ambitious and interventionist industrial policies. To ensure a swift transition and avoid falling into the middle-income trap, the Chinese government has recently devised a new industrial policy called “Made in China 2025.” This strategy envisages that China will join the ranks of industrialized countries through a structural change toward high-tech industries and by nurturing domestic production and absorption of “smart manufacturing” technologies. This new strategy favors domestic firms against foreign competitors and imposes strict domestic content requirements. In the past, these were essential characteristics of traditional industrial policies in East Asia (such as in Japan, Korea, and Taiwan). But the scale of the Chinese economy ensures that such a policy will have a significant impact on the world economy. This chapter overviews and evaluates contemporary industrial policies in China in conjunction with criticism from some advanced countries, which recently led to trade frictions. It sets up a theoretical and analytical framework to analyze industrial policies and apply it to the Chinese case.
