What investors should understand about China’s ‘dual circulation’ strategy

China’s economic performance throughout the Covid-19 crisis has set it apart from the crowd. Not only was the initial rebound quite impressive, the growth momentum has been maintained as recently shown by purchasing managers index data, in stark contrast to other major economies that are still struggling to escape the grip of the pandemic.

With China’s growth set to return its pre-Covid-19 path, there seem to be few roadblocks ahead for China’s near-term recovery. However, looking further ahead, dark clouds still lurk. China’s medium- to long-term growth prospects remain challenged by a number of chronic internal problems, such as an ageing population, rising debt, and an improving but still unbalanced growth model.

At the same time, the external environment is also restraining growth in areas such as trade, investment and technology. Navigating these currents is likely to require a new development strategy from Beijing that guides the economy to safer shores.

At the upcoming fifth plenary session of the Chinese Communist Party, Beijing is expected to unveil such a strategy in the 14th five-year plan. The market is likely to take keen note of details of the newly proposed “dual circulation” initiative, which could contain the guiding principles for China’s future economic development.