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Dual circulation remains key to China's development

By Colin Speakman | | Updated: 2023-03-09 17:03
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A truck loads containers at Tangshan Port, North China's Hebei province, April 16, 2021. [Photo/Xinhua]

China has faced a challenging economic environment during the global pandemic but the relaxation COVID-19 policies and the reopening of borders support an improved growth environment for 2023. In the last decade China had already adjusted its auspicious 8 percent growth targets, which had been achieved and exceeded, with an equally desirable 6 percent goal under a new normal of lower but quality growth, with an environmental focus.

In 2022, China's growth of 3 percent looked good in the context of major Western nations struggling to fight off recession. That environment and the IMF's recent forecast of a sluggish 2.9 percent global growth rate for 2023 means that China has had to rely on its ongoing “dual circulation” policy to achieve targets. This policy seeks to maximize the benefits of domestic income flows between producers and consumers supported by net investment and the government fiscal policy.

Thus, through the multiplier process, domestically generated growth can be achieved with targeted policies without severe impact from international turbulence. The policy also looks for opportunities to boost the economy through international activity as the second strand.

In 2023, the authorities will operate a proactive fiscal policy to support domestic growth targeted at 5 percent and a prudent monetary policy to ensure that inflation remains low, targeting a realistic 3 percent, and at a much more favorable rate than in Western economies.

In addition to achieving a solid, and what may well be a conservative, growth target that could readily be exceeded, additional targets have been set to ensure that surveyed urban unemployment does not exceed 5.5 percent. This will require creating around 12 million urban jobs in 2023. The private sector of the Chinese economy has played a critical role in job creation and the authorities plan to encourage and support an expansion of all levels of private enterprises and the self-employed.

Nevertheless, international economic relations remain important to China, and Beijing supports globalization. Chinese exports have played an important role historically in growth and China wants to play its part in providing opportunities to trading partners for quality imports.

It is clear that China cannot rely on a robust global economy in 2023. With inflation in leading Western economies around double figures and money wage growth unable to keep pace, real incomes are on a downward trend and living standards are falling. In addition, to grapple with high inflation, Western central banks have steadily increased interest rates, pilling further hardships on household mortgage costs and business borrowing rates. Basic items have generally increased in costs significantly and non-essential purchases including replacing or upgrading consumer durables are being put on hold. Such items are often imported from China.

In addition, some Western economies have been placing restrictions on the import of Chinese technology, claiming unproven security concerns. The Chinese leadership has stated that the United States says it wishes to robustly compete with China, but in practice it wants to contain China and to encourage allies in this policy.

Nevertheless, China will continue to boost its economy with efforts to attract foreign investment according to the government work report. With many leading technologies, a skilled workforce and a huge domestic market, China remains an attractive country for inbound capital. The authorities will continue opening up the modern services sector and help launch landmark foreign-funded projects. This will be assisted by the goal of keeping the renminbi generally stable, bringing a degree of certainty to business plans. To further boost the international element of the dual circulation policy, China will continue to seek membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

In summary, China can control much of its economic destiny through its large domestic market and targeted government policies while countering a challenging international environment. Its growth rate is once again likely to be the highest among major economies. That will be an important boost to global economic growth in 2023.

Colin Speakman is an economist from the UK and an international educator specializing in China.

The opinions expressed here are those of the writer and do not necessarily represent the views of China Daily and China Daily website.

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