Loop with open cycle
The new dual-circulation development paradigm, in which domestic and foreign markets reinforce each other with the domestic market as the mainstay, has been mentioned as the linchpin of China's 14th Five-year Plan (2021-25) for economic and social development and the long-range objectives through the year 2035. The notion of dual circulation was first introduced at a meeting of the Political Bureau of the Central Committee of the Communist Party of China in May 2020, and this innovative paradigm is expected to serve as a framework to guide China through the post-pandemic period and help the country better engage with the world.
Since the global financial crisis in 2008, China has introduced strategies to expand domestic demand and supply-side structural reforms, signaling the gradual shift toward internal circulation. The CPC leadership has consistently viewed the development of productive forces as the central objective of socialist construction. The "domestic loop", domestic circulation, is the key component of the new paradigm. Essentially, this requires policy measures at all levels to expand domestic consumption and smooth supply chains. China is currently the world's biggest market with 400 million people forming the middle-income groups. China's per capita GDP has been above $10,000. All of this indicates that shifting inwards is a natural choice.
The economic plan calls for measures to boost consumption of the middle-income group and remove barriers to the rational flow of production factors. Together this will create a higher-level dynamic equilibrium where supply and demand boost each other. Central to this is enhancing innovation in production. There is heavy emphasis on self-reliance in science and technology in the new paradigm, with increased government investment in research and development.
The centrality of the domestic loop, however, does not mean that the Chinese system will be "closed "in future. The policy emphasizes the paradigm is an "open cycle" in which China will work to promote the coordinated development of both domestic and foreign demand, imports and exports, as well as foreign and outbound investment. In the next five years, China will promote liberalization and facilitation of trade and investment, which stresses rules-based, transparent regulatory models and a business environment that better aligns with international norms.
One of the main elements will focus on positioning China at the high end of the manufacturing value chain in a way that better serves the domestic market. This will put even more emphasis on industrial policy to boost import substitution. This is reinforced by China's emphasis on technological innovation. The focus of China's introduction of foreign resources is now shifting to international factors of innovation, especially attracting high-end talents, while the core of China's international cooperation is shifting to technology cooperation. In other words, technological innovation is the field in which China expects to unleash productive forces.
China's dual-circulation paradigm aims to build a modern and resilient economic system. The new development paradigm also underscores the upgrading of China's economic structure, higher value-added in manufacturing and industrial and supply-chains.
This is probably the reason why China's new economic strategy has sparked skepticism in the West. Much of this criticism, however, is hypocritical and based on double standards. When today's major advanced economies industrialized a century ago, efforts at independence and self-sufficiency were typical to all of them, along with high tariffs and protectionism. In contrast, China's quest for development rests on multilateralism, global cooperation and a shared future, which includes all nations that seek to cooperate peacefully for shared sustainable growth.
The author is a political economist and a visiting lecturer at the Faculty of Graduate Studies, University of Colombo. This article is supported by the Chinese Academy of Social Sciences.