Given global headwinds, China’s ‘dual circulation’ strategy needs all of society’s support
- Dual circulation aims to rebalance China’s economy by reducing dependence on exports and big fixed-asset investments, against an increase in consumption
- It will take an enormous effort from the whole society to support this, especially against strong headwinds in international markets
China’s leadership has long recognised the need to move beyond the production and export-led growth model, even though it brought significant achievements and contributed to rapid economic growth over the past four decades.
A model based on local production with cheap labour and aggressive exports cannot continue to drive economic growth as wages rise and manufactured products lose their competitiveness in international markets.
In parallel with this process, China’s purchasing power grew, along with the domestic consumption market. That is why dual circulation was proposed.
Concentrating on the development of the domestic market with a priority on the hi-tech sector means that China will focus on modernisation and high-quality development, and continue to strive for a leading position in the distribution of global income.
On the international dimension of dual circulation, China’s ratio of trade to gross domestic product has fallen from 64 per cent in 2006 to 37 per cent last year. But the country remains more open to trade than, for example, the United States with a trade-to-GDP ratio of 23 per cent in 2020, though less so than the European Union with its ratio of 93 per cent.
As for the domestic aspect of dual circulation, China’s private consumption and services continued to grow. From 34.6 per cent of GDP in 2010, China’s private consumption increased to 38.5 per cent last year. The share of value-added services in GDP increased from 44.3 per cent in 2011 to 53.3 per cent last year.
At the same time, over the past decade, the ratio of investment to GDP has declined from 47 per cent in 2011 to 43 per cent last year. This year, private investment in the first five months fell slightly to 57 per cent of total investment but remained above the 55 per cent level achieved since 2012.
Dual circulation is a new policy to balance the Chinese economy by reducing its dependence on export supplies and large-scale investment in fixed assets. In today’s Chinese economy, these two factors are no longer enough to stimulate high-quality economic growth and to increase household incomes. It will take an enormous effort from the whole society to support China’s “quality growth”, especially against strong headwinds in international markets.
Djoomart Otorbaev is a former prime minister of Kyrgyzstan and a visiting senior fellow at the Institute for Global Cooperation and Understanding, Peking University. He is the author of the forthcoming book, Central Asia’s Economic Rebirth in the Shadow of the New Great Game