Beyond Trade Wars: Why 2025 Is The Year To Watch For China's Economic Dominance

As the new year ushered in President Donald Trump’s administration, and with global attention fixed on trade wars and tariffs, one critical narrative has been overshadowed: the pivotal significance of 2025 for the Chinese economy.

Beijing is often accused of “breaking the rules” or engaging in “unfair competition” against the United States (US)-led global trade system. While these charges carry a degree of truth from a conventional perspective, they fail to encompass the broader, more transformative reality unfolding within China’s economic engine.

Having long since moved beyond the phase of mere industrial imitation, China now wields its vast economic power to ascend the global value chain.

The statistics are undeniable. In 2024, China’s manufacturing sector shattered records with a trade surplus nearing $1 trillion. But beneath these staggering figures lie a far more compelling story — one of strategic foresight and relentless ambition.

In 2015, Premier Li Keqiang unveiled the "Made in China 2025" (MIC2025) initiative — a bold, decade-long blueprint to modernise China’s industrial base, reduce reliance on foreign technology, and establish itself as a leader in global innovation by 2049, the centenary of modern China’s founding.

Now, as the MIC2025 strategy approaches its 10-year mark, the world is asking: Has it delivered on its audacious promise?

The “Made in China 2025” plan — promulgated in 2015 by the State Council, China’s chief administrative authority — targets 10 high-end industries, including shipbuilding, electric vehicles, drones, renewable energy, and industrial robots, among others.

It harnesses China’s tightly interwoven state-party-business ecosystem to support targeted sectors through a variety of means, including large-scale investments, subsidies, intellectual property acquisition, and other formal or informal policies.

The MIC2025 initiative has, for the most part, been a resounding success. Aided by the government, Chinese firms have risen to the very top of some industries.

New Energy Vehicles

The new energy vehicle (NEV) sector has become one of the most emblematic successes of China’s MIC2025 initiative.

When the ambitious plan first set the target of 3 million domestically produced NEVs by 2025, it seemed a daunting task. Yet, by 2024, China not only met this goal but exceeded it, with sales exceeding 10 million units, accounting for nearly two-thirds of the global total.

But MIC2025 aims for more than just numbers. The plan envisioned placing at least two Chinese NEV manufacturers among the world’s top 10 passenger car companies by 2025, alongside a goal for 10 per cent of China’s NEV sales to be exported.

Evidence of this ambition became crystal clear in late 2024 when BYD, China’s largest EV maker, overtook Tesla to become the global leader in sales of battery-only cars.

Developing globally competitive, name-brand vehicles was an essential component of both Japan and South Korea’s economic development — a fact not lost on the Chinese government. As such, Beijing has pursued aggressive policies to drive both supply and demand for NEVs.

On the supply side, China has invested heavily in research and development, particularly in advancing battery technology, while simultaneously enforcing stringent emissions standards to encourage domestic NEV production.

Foreign automakers entering the Chinese market have been required to share their technology through joint ventures, further bolstering local expertise.

To safeguard its burgeoning industry, China has also restricted foreign-made batteries and introduced a "dual credit" system, rewarding NEV production while penalising overreliance on traditional internal combustion vehicles.

Simultaneously, demand has been fuelled through an array of consumer-focused policies, including generous subsidies, exemptions from sales tax on NEVs, and restrictions on licence plates for traditional vehicles, particularly in urban areas, where congestion is an issue.

Additionally, massive investments in EV charging infrastructure have further smoothed the path for widespread adoption. The government itself plays an active role as a major buyer, using procurement policies to lead by example.

Notably, NEV goals align with the "innovating up" approach described by researchers Llewelyn Hughes and Jonas Meckling. Rather than directly competing with established leaders, China focuses on creating differentiated, high-tech products for export, carving out its place in the global market.

Energy

In the realm of clean energy, China's aspirations may have initially seemed vague, but its achievements are now undeniable.

As the world’s largest consumer of energy, China has transformed into a powerhouse of the green revolution, manufacturing the tools that power the green transition across the globe.

Back in 2015, China accounted for 65 per cent of the world’s solar panel production and 47 per cent of its batteries. Today, these figures have skyrocketed to approximately 90 per cent and 70 per cent, respectively. This meteoric rise is no accident but the result of a meticulously executed industrial strategy.

By deploying subsidies and offering technological support, feed-in tariffs, and favourable policies, China has not only strengthened its domestic solar industry but also flooded global markets with affordable, low-cost goods. With the government’s support, China can produce these goods at lower costs than firms elsewhere.

According to China’s Ministry of Science and Technology (MoST), investments of approximately $2.9 million (20 million yen) were channelled to support small technology-based firms, fostering innovation and manufacturing growth.

But it’s not just about financial assistance. China’s success is deeply rooted in its ability to exploit economies of scale and vertical integration. As the National Renewable Energy Laboratory has pointed out, these advantages provide Chinese solar cell manufacturers with a core cost reduction of 18-20 per cent, excluding shipping expenses.

Parallel to this triumph in solar energy, China’s nuclear energy sector is equally emblematic of the country’s broader ambitions.

While nuclear power development has stalled in many OECD countries, China has embraced an assertive nuclear strategy, with 23 nuclear plants under construction as of May 2024. ("OECD" is short for Organisation for Economic Co-operation and Development.)

However, the impact of this expertise isn’t confined to its borders. Having built a robust foundation at home, China has now begun exporting nuclear reactors, signalling its intent to shape the global nuclear energy landscape.

Robots

Unlike its ambitions for other sectors, MIC2025 takes a uniquely domestic approach to robotics, focusing on dominating the home market rather than setting export targets.

The plan envisions a tenfold increase in industrial automation, aiming for 1.8 million units and an impressive 70 per cent share of the domestic market, up from just 30 per cent when the initiative began.

The latest data from the World Robotics report suggests that China is closing in on this ambitious goal. By 2023, 1,755,132 industrial robots were operating in Chinese factories, nearing the MIC2025 target. To illustrate the scale of this achievement, China installed 276,288 units in 2023 alone — more than the rest of the world combined.

While the progress has been impressive, it has yet to fully meet the plan’s aspirations. Chinese manufacturers captured 47 per cent of the domestic market in 2023, delivering 130,516 units — an improvement, though still short of the envisioned dominance.

Nevertheless, this development aligns with Beijing’s strategic vision to position robotics as a key driver of economic growth, a commitment reaffirmed by China’s Central Committee at the Third Plenary Session in July 2024.

The methods deployed to achieve this transformation are as ambitious as the targets themselves, involving staggering financial support and massive investments in physical capital.

As noted by the Information Technology and Innovation Foundation (ITIF) in its report on industrial robot adoption, “China appears to be in a class of its own” in its priority of robotics, providing “greater subsidies for robot adoption than any other nation, both in absolute terms and per robot.”

New Materials

A key yet often contentious issue at the heart of the MIC2025 strategy is in China’s near-dominance over advanced synthetic materials and its commanding grip on the mining and processing of critical resources.

China’s natural endowment of rare-earth elements has provided it with a strategic edge, producing approximately 90 per cent of the global supply. This group of elements is critical to avionics, satellites, clean energy machinery, and other prominent advanced technologies.

Yet, China’s ambitions stretch far beyond its natural advantages. For cobalt — a critical component in lithium-ion batteries — the story takes a different turn.

While the Democratic Republic of the Congo holds the lion's share of the world’s cobalt reserves, it is China’s companies that have seized near-total control over the extraction and refining processes. Efforts by global technology firms to reduce reliance on cobalt remain in their infancy, leaving China firmly in control of this vital supply chain.

In the market for lithium, another battery component, Tianqi Lithium, a formerly state-owned Chinese firm, now controls over half of the world’s lithium supply, further cementing China’s central role in the global battery manufacturing sector.

China’s dominance in advanced materials is not solely the result of its natural resource control. It is also the product of a sophisticated, integrated ecosystem that marries industry, academia, and research.

Through the establishment of multiple national key laboratories, the Chinese government has created a network that collaborates with universities and industries to develop an array of cutting-edge materials.

Further enhancing this strategy are the substantial financial incentives the government offers. Programmes such as the Research and Development Super Deduction and the High New Technology Enterprise initiatives provide generous tax benefits and funding to accelerate research and development in these critical sectors.

As Pan Aikua, Director-General of the Raw Material Division at China’s Ministry of Industry and Information Technology stated, “New materials are not only one of the 10 major key fields of development but also the foundation and support of the other nine fields.”

The pending targets include the industrialisation of large-sized deep-ultraviolet non-linear crystals, low-cost titanium alloy powder, certain special superconducting materials, graphene electrode materials that can double the range of lithium-ion battery-powered cars, and some special chemical materials.

Prized Battle

Among the many challenges China has encountered in its pursuit of technological supremacy, none has proven more formidable than the information technology sector.

The ambitions outlined in MIC2025 for the semiconductor industry are as audacious as they are critical to China’s technological future — an annual growth rate of 20 per cent per year in the integrated circuit (IC) industry, and an IC supply chain on par with “advanced international levels” by 2030.

Yet, despite its aspirations, the target remains elusive, as evidenced by the actual growth rate of 16.6 per cent in 2020, with many experts expressing doubt that China can meet its 2030 objectives.

While China’s semiconductor industry has made notable strides, it continues to grapple with substantial challenges — chief among them high-end materials, advanced lithography equipment, and skilled labour required for cutting-edge chip production.

To overcome these hurdles, China is doubling down on government investment and forging international partnerships.

Similarly, while China has made remarkable headway in lower-end chip production, it still lags behind the global leaders in the high-end market, which continues to be dominated by established giants.

In an effort to bridge this gap, China has turned to mergers and acquisitions, particularly in critical areas like electronic design automation (EDA) and analog chips, hoping that integration will accelerate innovation and close the technology gap.

However, the crux of China’s struggle does not lie in chip design or testing — where it has made notable progress — but in acquiring the specialised production equipment necessary for manufacturing the most advanced semiconductors.

Notably, while Huawei Technologies has managed to achieve double or multiple exposure processes for high-end chip manufacturing, China has yet to master the industrialisation of extreme ultraviolet (EUV) lithography technology, a pivotal advancement in semiconductor fabrication.

According to the Financial Times, China is currently capable of achieving only what Dutch semiconductor giant ASML accomplished 15 years ago, leaving China far behind in the race for the most advanced chip-making capabilities.

Brett Simpson of Arete Research sums it up: “You cannot build a semiconductor facility without using the big major equipment companies, none of which are Chinese. If you fight a war with no guns, you’re going to lose. And they don’t have the guns.”

This stark reality underscores the urgency embedded in the MIC2025 plan: China must accelerate the development of its own domestic chip capacity and supply chain, sparing no resource in the process.

Lagging, But Not Far Behind

Other 'Made in China' targets remain a work in progress.

In the realm of shipbuilding, China has long outpaced its competitors in production volume, yet its lofty ambition of capturing half of the global market for specialised vessels, such as liquefied natural gas (LNG) carriers, remains just beyond reach.

South Korea continues to dominate the high-end segment of the market, leaving China with significant room for growth and innovation.

In aviation, China’s dreams of building its own large commercial aircraft have yet to be fully realised. While the debut of the C919 — a Chinese-made passenger aircraft — marked a milestone with its first commercial flight in 2023 from Shanghai to Beijing, the aircraft’s assembly relied heavily on foreign parts.

While scepticism surrounds the C919’s potential to quickly scale and compete with established global giants, even a less-than-perfect product could pose a serious threat. The Chinese government’s considerable control over domestic airlines and its ability to provide significant export financing could tilt the scales in favour of its homegrown aviation industry.

The production of aircraft and spacecraft — along with the advanced technologies required to mass-produce them — represents the pinnacle of global manufacturing in terms of value, complexity, and production scale.

Though a sizeable gap remains between China’s industry and its US and EU competition in aircraft, the future demand for what is expected to become the world’s largest airline travel market positions China to catch up.

Fast-tracking Leadership

Beyond the impressive numbers and sector-specific support that have fuelled China's manufacturing prowess, two key factors have been instrumental in propelling the nation to industrial dominance.

First, the state’s strategic grooming of small and medium enterprises (SMEs) has played a crucial role in fast-tracking China’s industrial ascent.

Through a pyramid-like framework, SMEs in China rise from provincial recognition to national acclaim, with the highest achievers receiving generous subsidies, policy support, and integration into vital supply chains.

These “little giants,” as they are often called, serve as both innovation hubs and strategic vehicles for reducing China’s dependence on foreign suppliers.

Notably, this focus on cultivating specialised SMEs mirrors successful strategies seen in other industrial powerhouses, such as Germany’s “hidden champions” — mid-sized, often family-owned, companies that helped rebuild the German economy after the Second World War by mastering niche markets.

The second crucial element in China’s manufacturing success is the emphasis on industrial clustering.

Clustering — or the banding together of small businesses, which are part of the same industry, to specialise in one narrowly defined stage of production — has helped Chinese entrepreneurs overcome the hurdles to running a business in a state-dominated economy, said Xiaobo Zhang, an IFPRI research fellow who has studied extensively the contribution of clusters to development.

“With production split up among many firms, each one can give credit to its customers and get credit from its suppliers, easing the burden of financing” and lowering the barriers to entry, explained Zhang.

Thirdly, China’s success is bolstered by its vast pool of human talent and its enormous, rapidly growing domestic market for manufacturing. The sheer size of this market makes China an irresistible attraction for global innovative talent and international capital.

Equally crucial to this success is China’s world-class infrastructure, which has helped create an excellent environment for investment in manufacturing.

The nation leads the globe in high-speed rail and highway networks, and ultra-high-voltage transmission systems. Additionally, the country is at the cutting edge of digital infrastructure, with record construction of gigabit-level optical cables and 5G broadband wireless communication networks.

End Goal

An analysis by the South China Morning Post reveals that over 86 per cent of the goals set out in the “Made in China 2025” initiative has already been accomplished, with the remaining targets expected to be realised in the near future.

When measuring China’s progress against the benchmarks outlined in 2015, it is evident that the nation has far exceeded expectations. Chinese spending on research and development now accounts for 2.64 per cent of its GDP, surpassing the average for European Union countries.

By value, China now accounts for 34 per cent of global manufacturing output, a significant leap from just 19 per cent in 2010, according to Jeongmin Seong, a partner at the McKinsey Global Institute.

As Zang Jiyuan, a scholar specialising in strategic research on China’s manufacturing sector at the Chinese Academy of Engineering (CAE), aptly states, “China has basically achieved the vision set 10 years ago.”

Do numbers capture everything at play? Perhaps not.

While there are certainly lingering concerns and challenges, China’s persistence, foresight, and economic might position it to navigate these hurdles with confidence.

The real question lies not in China's progress but why other nations struggle to compete or even develop the capacity for manufacturing in the first place.

As Lu Yongxiang, former vice-chairman of the National People’s Congress and director of the expert advisory board for the MIC programme, astutely points out, the decline of US manufacturing can be traced back to a series of strategic missteps — a cautionary tale for other nations to learn from.

The Covid-19 pandemic only amplified these vulnerabilities, as countries watched helplessly while China consolidated its dominance over the global manufacturing supply chain.

In response, many nations have scrambled to initiate plans to rejuvenate their own manufacturing sectors.

Germany, for example, rolled out its ambitious “Industry 4.0” initiative, while France launched the “New Industrial France” programme, both aiming to modernise and transform their industrial landscapes.

Meanwhile, the US launched the “Industrial Internet Revolution,” hoping to revitalise its manufacturing processes through the Internet of Things and big data technologies.

Japan, too, took strides with its “New Industrial Japan” programme, which sought to digitise and transform its industrial sector.

As for China’s ambitions, Lu Yongxiang sums it up best: “We will take other countries’ jobs. We’re going to take their factories.”