Chinese dual circulation economic policy Published : Sunday, 7 November, 2021 at 12:00 AM Cou

https://www.observerbd.com/news.php?id=338765

M S Siddiqui

Chinese dual circulation

economic policy

A report issued in

September 2020 by China's

Development Research

Centre under the State

Council, the government's

cabinet, predicted that the

nation's per capita gross

domestic product will reach

US$14,000 by 2024, and

that the size of China's

economy would exceed that

of the US by 2032, with at

least 560 million middle-

income consumers. China

will try to increase the size

of its middle class and

narrow the wealth gap, so

domestic consumption will

increase. It also means

China's production system

will be repositioned to focus

more on demand at home rather than abroad.

According to a Xinhua report, President Xi Jinping remarked in a conference

with tech entrepreneurs in July 2020: "Under the current external environment

of rising protectionism, downturn in the world economy, and shrinking global

market, we must focus on getting our own house in order". He said it is

necessary for China to "give full play to the advantages of the super-sized

domestic market, and to gradually form a new development pattern in which the

great internal circulation will form the principal part, while the circulation

between the domestic and international will promote the former".

Since then, China has squarely aimed at changing China's economy from a

producer economy to a consumer economy. It is State Policy and it means that

China is looking to Chinese consumer's domestic demand on one hand, while

simultaneously developing conditions to facilitate foreign investment and boost

production for exports on the other. It is a "dual circulation" of internal and

external circulation strategy.

The concept has two equally strong components: "internal circulation," which

refers to domestic economic activities, and "external circulation," which relates

to China's economic links with the outside world for investment in China. The

first academic study on dual circulation defined it as "the domestic

consumption-driven economic rebalancing to achieve sustainable economic

development". The strategy would involve supporting domestic businesses and

reducing China's dependence on imports, including for energy, microchips, and

other technology.

Xi Jinping called for the 'formation of a new pattern of economic development',

given the rapidly changing global context, and the strategy is being embedded in

China's 14th Five Year Plan (2021-2025). Xi stressed that the dual or 'twin

domestic and international circulations would mutually reinforce each other.

The "dual circulation" strategy becomes a key priority in the government's 14th

five-year plan (2021-2025). The term "dual circulation economy" has been

popping up in economic discussions across China, signalling a potential

paradigm shift in the Chinese economy. It has propose for implementing the

policy include government support for domestic technology companies and

working to attract more foreign investment.

The internal circulation will be supported by external circulation. It signals that

China wants to reduce the role of international trade in its economy, and

strengthen its domestic economy. China will rely mainly on "internal

circulation"--the domestic cycle of production, distribution, and consumption--

for its development, supported by innovation and upgrades in the economy.

China's dual circulation strategy involves tapping into its huge domestic market

of 1.4 billion consumers. The policy makers aim to reduce and eventually

eliminate China's reliance on advanced technology from the rest of the world.

On the other hand, turning only to internal circulation could be a difficult road.

Historically, during the end of 20th century, Japan's increased reliance on

internal circulation has exacerbated the bubble in the Japanese economy and

worsened the government's debt level. China has taken up policy of external

circulation policy side by side of internal circulation to safeguard the economy

from Japan-type bubble.

China has been making some significant changes to its economic direction and

overall investment policy during the course of 2020, with profound

implications, both, for foreign investors in China and for overseas funds and

investors looking for Chinese money. China's negative list is a management

model of foreign investment established in China and legalized by the Foreign

Investment Law of the People's Republic of China, which comes into effect on

January 1, 2020. It refers to special administrative measures for the access of

foreign investment in certain industries or areas.

This negative list is a detailed description of which industrial and service sectors

in China are open, partially open, or closed to foreign investors in China. The

'Negative' title reflects the off-limits sectors. The 2020 amendment significantly

increases market access for foreign companies in China although western

countries and investors are asking for more facilities for overseas investors.

President Xi promised reduce the negative list and open up more sectors for

overseas investment while inaugurating the fourth China International Import

Expo on 4th November, 2021.

China's Politburo, the supreme decision-making body of the ruling Communist

Party, decided that the dual circulation strategy will guide economic policies in

the decades to come, and while it will lean more on domestic consumption, it

will not turn away from the international market. But while the process of

economic liberalisation should be increased in preparation for a long-term

technological and economic rivalry with the US, the dual circulation plan also

includes lowering barriers for investors and a motivation to secure regional

trade pacts, according to economists and advisers.

China is considering slashing the average import tariff level to 5 per cent from

7.5 per cent over the next 3-5 years, and should use free-trade pilot zones to

explore building internationally competitive manufacturing hubs and strategic

industry bases. Chinese also welcome more foreign investment, strengthen its

Belt and Road Initiative, negotiate more free trade agreements and take

advantage of its free trade zones and ports.

China's opening up - a new "Negative List" by easing of both China's Foreign

Investment Laws and the Dual Circulation Strategy are all combining to make

China the consumer economy it wants to be. This is excellent news for overseas

investors about with Chinese people want them to manufacture in China. At the

same time, the opening of China's stock and bond markets gives investors

access to Chinese companies serving both sectors of the dual economy. It has

scrapped limits on foreign investment in its financial market and shortened its

national negative list to reduce the number of sectors that are off-limits for

foreign investors.

President Xi has revealed the plan to accelerate free-trade talks with all possible

partners. The process of economic liberalisation also aim in preparation for a

long-term technological and economic rivalry with the US, the dual circulation

plan also includes lowering barriers for investors and a motivation to secure

regional trade pacts. Bangladesh may learn from strategy and dynamic decision

of China and go for quick change in conservative policy about free trade

agreement (FTA) and overseas investment (FDI) to make self-reliant economy.

M S Siddiqui is a Legal Economist