China's Next-Generation Industrial Policy: Implications for ASEAN's Digital Economy

China’s Next-Generation Industrial Policy: Implications for ASEAN’s Digital Economy

Southeast Asia’s digital economy is deeply intertwined with China’s manufacturing and technology supply chains. As Beijing doubles down on industrial policy, the region must navigate a new landscape of trade dominance, supply chain dependencies, and technological competition.

A More Expansive Industrial Policy

A decade after “Made in China 2025,” China’s industrial strategy has entered a new phase. According to a recent report by Rhodium Group, the country’s industrial policy has evolved from targeting a set of strategic emerging industries to what the analysts call an “industrial policy of everything.” The intervention now spans upstream inputs, industrial equipment, downstream applications, services, and frontier technologies.

For ASEAN, this means that China’s ambition is no longer confined to sectors like electric vehicles or semiconductors. It is now pushing into areas such as chemicals, machinery, and industrial equipment—segments that have traditionally been dominated by advanced economies. This shift is significant for Southeast Asian nations that rely on imported capital goods and industrial inputs from China.

China Shock 2.0: Trade and Supply Chain Impact

The report highlights that China’s manufacturing trade surplus has roughly doubled to around $2 trillion since 2019, driven by rising exports and successful import substitution. This “China Shock 2.0” is not just about consumer goods. Chinese inputs are increasingly embedded in products manufactured and exported by third countries, creating indirect dependencies that are difficult to trace.

For ASEAN, this is a double-edged sword. On one hand, many Southeast Asian economies benefit from Chinese machinery, electronics components, and digital infrastructure. On the other hand, the rapid expansion of Chinese market share in key segments poses competitive pressure on local manufacturers.

Regional Impact: ASEAN’s Digital Economy and Supply Chain Exposure

ASEAN’s digital economy—covering e-commerce, fintech, cloud computing, and smart cities—depends heavily on hardware and software from China. The report’s finding that China now accounts for more than 50% of global exports in a near-doubling number of products has direct implications for the region’s technology stack.

For instance, the growth of data centers and 5G networks in Southeast Asia relies on Chinese equipment and components. The report’s emphasis on China’s dominance in upstream segments such as wafers, critical minerals, and magnets is crucial for ASEAN’s ambitions in electronics manufacturing and renewable energy.

Moreover, China’s industrial policy increasingly supports frontier technologies like AI, quantum computing, and future energy systems. State-owned enterprises and public procurement are being mobilized to create demand at scale. This could accelerate China’s leadership in AI, which may shape the development of ASEAN’s own AI ecosystem—either through partnerships or dependency.

Future Outlook: What Lies Ahead for ASEAN

Over the next 3-5 years, several trends are likely to emerge. First, China’s industrial policy will continue to drive high-volume, low-cost exports, putting pressure on ASEAN’s manufacturing sectors. Second, the deepening integration of Chinese components into global value chains means that supply chain resilience will remain a top concern for ASEAN governments. Third, as Beijing tightens control over financial resources to fund strategic priorities, we may see increased Chinese investment in ASEAN digital infrastructure as part of a broader regional economic strategy.

However, the report also notes risks from China’s approach: declining corporate profitability, weakening private investment, and slowing R&D growth. These could temper the effectiveness of China’s industrial push in the long run, creating windows of opportunity for ASEAN to strengthen its own digital industry.

Conclusion

China’s next-generation industrial policy is reshaping the global economic landscape, with significant implications for ASEAN. The region must carefully balance the benefits of Chinese investment and technology with the risks of dependency and competition. Strengthening regional cooperation, investing in homegrown digital capabilities, and diversifying supply chains will be essential for ASEAN to navigate this new era.