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This column examines how policy initiative has impacted firms&＃039; receipt of subsidies, R&D intensity, patenting, productivity, and profitability. The authors find that while more innovation promotion subsidies seem to flow into the listed firms targeted by the policy and these firms exhibit an increase in R&D intensity, there is little statistical evidence of productivity improvement or increases in patenting or profitability. Rising concern over the impact of Chinese industrial policy has led to the emergence of serious trade tensions between China and many of its major trading partners. In recent years, foreign criticism has increasingly focused on the “Made in China 2025” initiative. "Made in China 2025" is a multi-pronged policy initiative of the People's Republic of China, announced with considerable fanfare in May 2015. The explicit aim of this initiative is to move China away from being the ‘world's factory’ (producing cheap, low-quality goods due to lower labour costs and supply chain advantages) toward ‘innovation-driven’ production of higher-value products and services. The “Notice of the State Council on the Publication of Made in China 2025”, the official announcement document of “Made in China 2025,” specifies “being innovation-driven” as the central approach and notes that the country needs to “strive to achieve the strategic goal of becoming a manufacturing powerhouse through the ‘three steps’”. The first step is up to 2025. By that time, China needs to “greatly improve the overall quality of the manufacturing industry, significantly enhance innovation capabilities, significantly improve the labour productivity of all employees, and bring the integration of industrialization and informatization to a new level”. The policy targets ten key industries: (1) next-generation information technology, (2) high-end digital control machine tools and robotics, (3) aerospace and aeronautic equipment, (4) oceanographic engineering equipment and high-technology shipping, (5) advanced rail transportation equipment, (6) energy-efficient and new energy automobiles, (7) electric power equipment, (8) agricultural machinery and equipment，(9) new materials, and (10) bio-pharmaceuticals and high-performance medical equipment. Many other countries view the programme as threatening because it is regarded as China’s state-led effort to use government subsidies to mobilise Chinese enterprises to pursue intellectual property acquisition and catch up with – and then surpass – Western technological prowess in advanced industries (e.g. McBride and Chatzky 2019). In March 2018, a Trump administration investigation, launched under Section 301 of the 1974 Trade Act, concluded that China’s actions across a wide range of trade policies, including the “Made in China 2025” initiative, were “unreasonable and discriminatory”. The Trump administration then used these findings as a partial justification for a far-reaching trade war against China that the Biden administration has largely continued. Rising economic frictions between the world’s two largest economies have caused significant uncertainty for the global economy. Countries around the globe respond to this situation by instituting their own industrial policies. Surprisingly, many of the claims advanced by “Made in China 2025” proponents and critics have yet to be subjected to severe empirical scrutiny. Using information extracted from Chinese listed firms’ financial reports and a difference-in-differences (DiD) approach, we examine how the policy has impacted firms' receipt of subsidies, R&D intensity, patenting, productivity, and profitability (Branstetter and Li 2022). Despite the fanfare with which it was announced, the Chinese government has never publicly identified the firms that were designated to receive support under this programme. To identify firms likely affected by the policy, we perform a text search on all annual reports of Chinese listed manufacturing firms from 2015 to 2018, and highlight the firms that mentioned “Made in China 2025” at least once in their reports. A manual check of all such mentions indicates the reporting firms expected to benefit from this program. We consider these firms as ones ‘affected’ by the policy. As an alternative, we also match firms’ industry information to the ten industries targeted by the policy to identify affected firms. The results generated by these two methods are broadly consistent. We use several outcome measures to explore the impact of the "Made in China” initiative, including total subsidies received, innovation subsidies, the R&D/sales ratio, Chinese invention patent application counts, US utility patent application counts, labour productivity (calculated as sales divided by the number of employees), total factor productivity (TFP), and profit margin (calculated as profit divided by sales). Using difference-in-differences and event study approaches, we find that while more innovation promotion subsidies seem to flow into the listed firms targeted by the policy and these firms exhibit an increase in R&D intensity (the R&D/sales ratio), we see little statistical evidence of productivity improvement or increases in patenting and profitability measures. Our results cast doubt on the view that the "Made in China 2025" initiative has achieved its key objectives. Our results are consistent with the main findings of the recent work of Cao et al. (2022), who develop a Schumpeterian growth model and decompose quantity-based innovation subsidies’ impact on growth and welfare into quantity and quality channels and show that China’s quantity-based subsidies could, at least in theory, cause productivity reduction and public welfare losses. The absence of evidence that these benefits have been realised sits uncomfortably against strong evidence that the implementation of "Made in China 2025" has generated significant costs for the Chinese economy. While rising trade friction between China and its principal trading partners has many causes, many countries point to the policy as a significant factor. As tariffs, restrictions, and export controls enacted against Chinese firms proliferate, and China responds with trade restrictions of its own, these costs mount. Our findings suggest policymakers outside China may have also overestimated the actual effect of China’s “Made in China 2025” initiative. This could have negative consequences. If other developing countries perceive the initiative and other industrial policies (Note 1) as the secret of China’s economic success, they may follow China’s lead and institute their own industrial policies, which could compel their trading partners to respond. If Western countries view the "Made in China 2025" initiative as a threat to the competitive positions of their firms, they may also begin to introduce more industrial policies as a response. Two recent examples are the US CHIPS Act and the European CHIPS Act. Like the “Made in China 2025” initiative, both of these policies feature targeting certain ‘strategic’ industries and giving taxpayer money to targeted firms (Note 2). The proliferation of these policies could take on the dynamics of an arms race and further undermine the rules-based international trading system and the political support for it. In that context, our results – which raise doubts about the efficacy of one of the most well-known Chinese industrial policies – may open up space for governments around the world to reconsider their rush to embrace these policy instruments. This article first appeared on VoxEU on August 11, 2023. Reproduced with permission. Footnote(s) ^ See Kalouptsidi et al. (2019) on the impact of China’s industrial policy targeting the shipbuilding industry and and Branstetter et al. (2023) on the relationship between the allocation of government subsidies and total productivity for Chinese listed firms. ^ See Van Reenen (2012) on the effect of investment subsidies on small firms. Reference(s) Branstetter, L G and G Li (2022), “Does ‘Made in China 2025’ Work for China? Evidence from Chinese Listed Firms”, NBER Working Paper No. 30676. Branstetter, L G, G Li, and M Ren (2022), “China does not pick – or create – winners when giving subsidies to firms”, VoxEU.org, March. Cao, L, H Jiang, G Li, and L Zhu (2022), “Haste Makes Waste? Quantity-Based Subsidies Under Heterogeneous Innovations”, ShanghaiTech SEM Working Paper No. 2022-03. Kalouptsidi, M, N Bin Zahur, and P J Barwick (2019),“Industrial policy: Lessons from China”, VoxEU.org, September. Krugman, P R (1983), “Targeted Industrial Policies: Theory and Evidence”, Industrial Change and Public Policy, 123–55. McBride, J, and A Chatzky (2019), “Is ‘Made in China 2025’a Threat to Global Trade?”, Council on Foreign Relations 13. Van Reenen, J (2012), “Industrial policy works for smaller firms”, VoxEU.org, February. 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