Opinion | The real economic reforms China needs to become less dependent on exports

Despite talk of a new ‘dual circulation’ strategy, China’s slowing economy will only become more dependent on exports unless it overhauls its investment-led growth model to truly boost consumption

There are efficiencies to be reaped in focusing resources on megacities and stripping away bureaucracy, but political will is lacking

Reading Time:4 minutes

Published: 9:15am, 11 Sep 2020Updated: 9:31am, 11 Sep 2020

Beijing is advocating a “dual circulation” economic strategy, to reduce its reliance on overseas markets, in effect adding its so-called “big internal circulation” to the “external circulation”. The new wording is a reminder of many other unusual wordplays on economic policy in the past, more thunder than rain. Could this time be different?

The odds are that China will not change until external demand collapses for good. So, coming up with phrasing for a new economic strategy is likely to be for psychological benefit.

The irony is that, despite the loud talk of economic decoupling, China’s exports are booming. The Covid-19 pandemic has crippled production in most major economies. Their governments have given people “helicopter” money to spend, even as they stay at home. When they buy something online, often out of boredom, the demand goes to Chinese factories. As Covid-19 has depressed China’s domestic consumption, as it does not have “helicopter” money, its economy has become more dependent on exports.

China’s worry over its exports in future is reasonable. If a coronavirus vaccine comes soon, global production will normalise and China will face more competition. Meanwhile, disappearing “helicopter” money will depress demand. Headwinds from the US-China trade war will resume. These may lead to an export decline for China.

If, due to unexpected difficulties, a vaccine were unattainable for now, the world would plunge into despair again. The global economy could shrink by another 10 per cent. Even “helicopter” money may not save China’s exports. Thus, China’s export-led recovery this year is fragile and a double economic dip is a significant risk.

The talk of dual circulation comes as a long-term threat arises to China’s investment/export-led growth model. Because of China’s size, the model’s sustainability has been in doubt over the past two decades. Japan’s exports were worth about US$5,600 per capita last year. At the same per capita level, China’s total exports would triple, to US$7.8 trillion. The backlash against globalisation is largely against cheap Chinese exports. Imagine the world’s reaction if China’s exports were three times as big.

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