• By The Financial District


China’s recently announced “dual circulation” strategy – in which its traditional emphasis on growth through exports will be bolstered by a renewed focus on spurring domestic demand – is a recognition of a simple reality: the highly conducive international trade environment that fueled China’s supercharged growth for decades is breaking down, Stephen Olson wrote for the South China Morning Post (SCMP) on September 13, 2020.

The prevailing presumption since at least the 1990s, across both developed and developing nations, has been the more trade, the better. The efficiencies and hoped-for geostrategic benefits of deep economic integration were seen as far outweighing any dislocations that might occur, he added.

The circulations referred to are “external circulation” – production for exports – and “internal circulation”, or production for domestic consumption. While China’s focus for the better part of the past three decades has been on external circulation, the dual circulation strategy will place a heightened emphasis on internal circulation while not forsaking the export goose that has laid the golden eggs.

Although details on the new strategy have been sparse, China is essentially seeking to maintain its ability to engage globally in trade, finance and technology where and when it suits China’s interest. At the same time, it wants to strengthen domestic demand, production and technological capabilities to create a hedge against disruptions in the global marketplace. Under this policy, the rest of the world will no longer be the leading sector of the Chinese economy. China will become more self-reliant. The effort to reduce China’s external reliance, especially in the technology, energy and agricultural sectors, is sensible. China relies on US$300 billion worth of imported semiconductors to meet more than 85 per cent of its domestic market demand, and the tightening of US export restrictions shows just how precarious that source of supply has become.

The Financial District would like to learn more from its audience. Can you please give us feedback on this article you just read. Click Here to participate in our online survey.