TL;DR
Western debates about China’s industrial rise often focus on subsidies, but the deeper driver is commercialisation: turning technology into globally competitive products faster than rivals. Government-backed venture funds invested $184 billion in AI-related firms over two decades, yet companies such as BYD, CATL, and DeepSeek emerged through state-funded competition rather than top-down planning. China’s R&D spending has now surpassed the US in some measures, Made in China 2025 reached 86 per cent of its targets, and the 15th Five-Year Plan pushes the same model further. The key question is no longer whether Beijing subsidises industry. The real question is why China’s subsidies produce globally competitive firms while Europe’s produced failures such as Northvolt.
Discussion in the West about China’s industrial rise keeps returning to the same issue: how much of it is driven by subsidies? The European Commission’s anti-subsidy probes into Chinese electric vehicles, solar panels, and wind turbines have led to tariff structures that treat government support as the main reason for China’s competitiveness. The US Treasury and Commerce departments have used duties and export controls based on the same assumption. That framing is politically convenient, but it leaves out the main point.
Subsidies matter, but they are not the full story. The real advantage is commercialisation: the ability to take a technology, whether developed locally or imported, and scale it into a global product faster than any other economy has managed. That capability, more than the money behind it, is what other countries have struggled to match.
The shift
Chinese policymakers describe the country’s industrial transition as a move from the “old three” exports – textiles, furniture, and home appliances – to the “new three”: electric vehicles, lithium-ion batteries, and solar panels. This is not just a slogan. In 2025, clean energy made up more than a third of China’s GDP growth. In March 2026 alone, Chinese companies shipped a record 68 gigawatts of solar panels, double the previous month and 49 per cent above the previous record. Battery exports reached $10 billion in the same month. Fifty countries set new records for imports of Chinese solar panels. The “new three” accounted for two-thirds of the value added from clean energy in China and attracted more than half of all investment in those sectors.
The scale comes from execution, not just subsidy support. BYD sold 4.54 million new energy vehicles in 2025. CATL held 39.2 per cent of the global EV battery market, while BYD added another 16.4 per cent. Six Chinese battery makers together controlled 69 per cent of global installations. In Europe, warehouses held around seven billion euros’ worth of Chinese solar panels – enough to power 20 million homes – because European manufacturers could not compete on price. China now produces four out of five of the world’s photovoltaic panels. That dominance is not tied to one subsidy program. It comes from a system that moves from lab to factory to global market faster than competitors can react.
The machine
China’s industrial rise is often described as innovation, but that is not quite the right word. In Silicon Valley terms, innovation means creating something new. What China has built is commercialisation: taking existing technology and producing it at scale, at lower cost, with constant improvement, inside a domestic market large enough to absorb failures along the way. The mix of market size, supply-chain integration, patient state capital, and intense competition among private firms has created a commercialisation engine with few historical comparisons.
Government venture capital funds invested an estimated $184 billion in nearly 10,000 AI-related firms between 2000 and 2023. That is a huge sum, but spread across two decades and thousands of companies, it does not amount to a single central plan creating one national champion. Instead, it is a funding ecosystem that supports hundreds of competitors and lets the market decide which ones survive. The firms that emerged – BYD, CATL, Huawei, DJI – are best understood as products of state-backed competition, not simple state planning.
DeepSeek’s release of its V4 model on Huawei’s Ascend chips showed this pattern in real time. Its earlier V3 model was trained for $6 million, roughly 3 to 4 per cent of what OpenAI spent on GPT-4. The company reached comparable performance not by spending more, but by building more efficiently under constraint. US export controls limited access to Nvidia’s top chips, so DeepSeek adapted its code for Huawei’s CANN framework and released an open-source model that competes at the frontier. The subsidy debate matters less than the larger point: a company under sanctions still produced a competitive AI model at a fraction of the usual cost.
The numbers
China’s domestic R&D spending reached 3.92 trillion yuan, or about $569 billion, in 2025, with R&D intensity rising to 2.8 per cent of GDP. By one measure, China has already overtaken the United States in total R&D spending, with gross research and development expenditure reaching about $1.03 trillion in 2024, compared with $1.01 trillion for the US. Chinese entities filed 1.8 million patent applications in 2024, about three times the US total of 603,000. Since 2019, China has also led globally in the share of the world’s top 1 per cent most-cited scientific papers.
The 15th Five-Year Plan, which covers 2026 to 2030, formalises what Beijing calls “new quality productive forces”: innovation-led production capacity defined by high technology, high efficiency, and high quality. The plan calls for average annual R&D growth of 7 per cent, aims to raise core digital industries to 12.5 per cent of GDP, and prioritises breakthroughs in integrated circuits, industrial machine tools, high-end instruments, foundational software, advanced materials, and biomanufacturing.
China’s robotics push is also becoming more visible. A humanoid robot recently beat the human half-marathon world record by seven minutes at a Beijing race with 112 teams. Robotics and embodied intelligence now sit among the top ten “new industry tracks” in the 15th Five-Year Plan, supported by a one-trillion-yuan state fund. The plan is not aspirational. It is the operating blueprint for an economy that has already achieved or exceeded 86 per cent of the targets set under Made in China 2025.
The response
The Western response has mainly been defensive: tariffs, export controls, and subsidy investigations. The European Union imposed countervailing duties of up to 35 per cent on Chinese electric vehicles. Brussels is also expanding duties of 20 to 50 per cent across green technology, industrial goods, and strategic sectors. The EU’s proposed Industrial Accelerator Act includes a 70 per cent EU-content requirement for electric vehicles. In the US, the White House has accused China of large-scale efforts to distil American AI models, and the Office of Science and Technology Policy has documented thousands of proxy accounts and jailbreaking attempts aimed at OpenAI, Anthropic, and other frontier AI companies.
But tariffs assume the core issue is price. It is not. The real issue is capability. American and European manufacturers cannot match Chinese scale, cost structure, or speed of iteration, even when prices are similar. When Brussels imposed 35 per cent duties on Chinese EVs, the price gap narrowed but did not disappear. European carmakers still cannot build an EV at BYD’s price point because BYD controls its battery supply chain, makes its own semiconductors, and operates at a scale no European rival can match. Tariffs may protect margins. They do not close the capability gap.
Europe’s battery situation looks even starker after Northvolt’s collapse. The company had secured $15 billion in funding and aimed to capture 25 per cent of Europe’s battery market by 2030, but it filed for bankruptcy before reaching that goal. Chinese and South Korean firms already supply 90 per cent of Europe’s batteries. The failure was not mainly about funding. Northvolt had more capital than any European battery startup before it. The real problem was commercialisation: the inability to turn funded ambition into manufactured products at competitive cost and quality.
The question
Made in China 2025 achieved global leadership in five of the 13 critical technologies it targeted: high-speed rail, graphene, unmanned aerial vehicles, solar panels, and electric vehicles with lithium batteries. It fell short in aerospace, advanced robotics, and manufacturing value-added growth. But even that partial success was enough to make the next phase credible. The 15th Five-Year Plan is not a fresh strategy; it is a continuation of a model that has already delivered results in the sectors most important to the energy transition and the AI economy.
What the West now calls “China Shock 2.0” is really the external effect of a process that has been building for two decades. China’s trade surplus doubled between 2015 and 2025. The EU’s trade deficit with China doubled in value to 309 billion euros in 2024 and quadrupled in physical terms. Imports of Chinese industrial robots into Europe rose 171 per cent in a year while prices fell 31 per cent. Integrated circuit imports were up 84 per cent. Car imports more than doubled.
These numbers do not point to a short-term export surge. They point to an industrial system that has learned how to commercialise technology faster, more cheaply, and at greater scale than any Western economy can currently match. The question is no longer whether Beijing subsidises its industries. Every major economy does that. The real question is why China’s subsidies produce globally competitive companies while Europe’s produce outcomes like Northvolt.
