New Five-Year Plan: China’s Changing Impact on the Automotive Industry

From planned economy to an economy with a plan

Back in the era of “actually existing socialism”, five-year plans epitomized systemic failure. They embodied management of scarcity and the mismatch between unrealistic political ambitions, limited production capacities and disappointed consumer needs. The fact that China continued to adhere to the principle of five-year plans even after transitioning to a market-based system was long mocked in the Western world as nostalgic reminiscence. Who needs such plans when the market regulates everything?

China has unlocked the entire new e-mobility ecosystem

At the latest, by the time the Shanghai Auto Show took place in spring 2023, no one was laughing anymore. In one fell swoop, the Western automotive industry realized that, through long-term strategic planning, China had managed to unlock the entire new ecosystem of electromobility and had suddenly assumed a dominant role within this complete ecosystem. These successes are primarily the fruits of the 14th Five-Year Plan, which will be succeeded next year by the 15th Five-Year Plan designed to further develop the national economy and society. The draft of this new framework has evolved in recent years and was discussed and approved by the Central Committee of the Communist Party of China (CPC) in October 2025. In March 2026, the plan is expected to be approved by the National People’s Congress – supplemented by specific, quantitative targets.

The 14th Five-Year Plan allowed China to establish dominance in the electromobility ecosystem and catch Western competitors off guard. It focused on technological innovation and rapid investment- and export-driven expansion. In contrast, the new plan elevates technological self-sufficiency and self-strengthening to the status of national goals and central growth drivers. In the future, promoting domestic consumption and creating “real-world value” for the broader population will gain greater significance. This is to be achieved through higher household incomes and more vacation time. The workforce is to participate more in technological progress and have more time and money for tourism and other forms of private consumption.

Automotive start-ups can no longer count on a protective hand

This shift should not be interpreted as a retreat to the home market, however. It should be seen instead as a consolidation phase after rapid expansion and what has at times been a very heated and capital-intensive technological race with the West. There was significant public support for the development of around 120 new car brands, diverse battery gigafactories and photovoltaic production plants; returns and industry structure are still normalizing. Intense price competition has begun in the automotive market, and established players like BYD must revise their revenue and profit targets. In the end, the automotive market will most likely consolidate significantly, as only 62 brands produced more than 10,000 units in 2024. Automotive start-ups can no longer count on a protective hand from the regional governments, since electromobility is now seen as a mature industry that can be entrusted to the free play of the market.

Although the Central Committee is using the new plan to pursue holistic modernization, it is still focusing on future technologies, such as robotics, AI and quantum technology, semiconductors, biotechnology and fusion energy. Aerospace and defense are also crucial industries, as they both ensure strategic resilience and offer growth multipliers. Therefore, holistic industrial modernization also means further expansion of technological ecosystems.

New priorities and strategic imperatives

Through initiatives such as “Digital China” and “AI Plus,” the digitalization of both the economy and society is to be pushed further, while artificial intelligence is to be anchored in all technological innovations and industrial developments. The new five-year plan defines three priorities:

Manufacturing: “Intelligent manufacturing,” “green manufacturing” and “service-oriented manufacturing” are the three strategic pillars for modernizing China’s industrial base. The government aims for 60% of companies to achieve advanced digital maturity by 2030 and for “5G + Industrial Internet” platforms to be significantly expanded.

Energy and sustainability: The plan reaffirms the dual carbon transition and aims to increase the share of renewable energies, improve storage infrastructure and reform electricity pricing. Environmentally friendly manufacturing and low-carbon supply chains will receive targeted fiscal and financial incentives.

Digital and platform economy: After several years of tightening regulations, the plan ushers in a new phase of “regulated innovation.” Policy focuses on promoting digital platforms while maintaining oversight of large B2C companies.

Finally, the country’s planners are making another strategic shift in the relationship between domestic and foreign trade. While the 14th Five-Year Plan introduced the model of “dual circulation” (mutually reinforcing domestic and foreign markets), the 15th Five-Year Plan focuses on the unification of domestic markets and the stabilization of foreign relations within a movement towards self-sufficiency. In practice, this means

1. continued openness to foreign investment in strategic manufacturing and green sectors;
2. greater alignment with global digital and trade rules (including free trade agreements and WTO reforms); and
3. strengthened data governance, cybersecurity and supply chain resilience.

China’s economy may lose some agility and flexibility but will become more predictable

The plan represents an adaptation to global economic and geopolitical dynamics and underlines China’s intention not only to transform its national economy and society, but also to consolidate its role as a global actor: After a phase of dynamic expansion, China is solidifying what it has achieved without retreating from its ambition to be an economic and political superpower in the future. To some extent, it is turning away from regional experimentation and relying more on top-down governance. As a result, the economy may lose some agility and flexibility but will become more predictable, especially for foreign companies. With a clear commitment to a rules-based world trade system, the country is stepping into the gap currently left by the United States under the current administration and positioning itself as a guardian of the rules.

On the other hand, China’s focus on self-sufficiency, resilience and economic independence increases the pressure on Europe, which is still struggling to establish a self-sufficient industry and robust supply chains.

Closely linked in time and content to the government plan is the “Energy-Saving and New Energy Vehicle Technology Roadmap 3.0”, presented by the China Society of Automotive Engineers (CSAE) on October 22, 2025.

China’s automotive industry is using this roadmap to pursue a number of ambitious goals, such as a drastic reduction in CO₂ emissions, intensive electrification and the development of intelligent, connected vehicles by 2040. The strategy envisages full hybridization of traditional passenger cars by 2035 and battery electric vehicle (BEV) penetration of over 85% by 2040, with intelligent manufacturing and innovative technologies such as solid-state batteries playing a key role. China also aims to become a global innovation center for automotive engineering and significantly expand its international competitiveness.

New Priorities of Industrial Policy and Potential Consequences

Impact on the automotive industry

Non-Chinese companies with a strong presence in China should prepare early for the strategic shift:

Partnership instead of mere presence: “Developing together with China” trumps “manufacturing in China.” Local research and development centers, universities and regional platforms should be involved to adapt to China’s innovation and localization agenda. Western – and especially German – car manufacturers are already successfully practicing “in China for China.” The next step should be “with China from China for the whole world.”

Alignment with China’s productivity priorities: German companies in particular have experience in industrial automation, CO₂ reduction, capture and storage, and other green technologies such as green hydrogen. They can contribute to shared value creation as a result.

Resilience through transparency and independence: Data localization, supply chain transparency and parallel operations will become essential for compliance and risk management. The recent chip crisis and the debate on restricting exports of rare earths have shown that Europe remains vulnerable, and China may act more assertively in safeguarding its industrial and supply‑chain priorities.

The next stress test for Western players is imminent

The Western automotive industry has undergone a painful adaptation to the new Chinese realities. However, its new market strategies are now bearing fruit. Nevertheless, the next stress test for Western players is imminent, as further consolidation of the Chinese automotive market is expected. The reduction to a few brands will make it easier for Chinese companies in the European market, as potential buyers will have more confidence that software updates and services will continue to be available for their vehicles in the future. Amid the consolidation, Chinese manufacturers can use aggressive pricing to gain market share. Afterwards, high-performing companies will have survived – forged in the fire and ready to compete even more intensely with their European counterparts.   

Through the even stronger promotion of technological ecosystems, existing technologies will reinforce each other and drive scaling. This will further expand China’s technological lead, especially in key areas such as autonomous driving, and present Western players with tough competition.