At the end of October 2020, the Proposals of Formulating the Fourteenth Five-Year Plan for National Economic and Social Development and the Long-term Goals for 2035 adopted by the Fifth Plenary Session of the 19th Central Committee of CPC, proposed to accelerate the establishment of a "dual circulation" development pattern in which domestic and foreign markets reinforcing each other with the domestic market as the mainstay. This is a major shift of China's economic development strategy, which will have far-reaching impact on China's efforts to achieve higher quality, more efficient, more equal, more sustainable and more secure growth, as well as on the growth of the world economy.
Dual Circulation ( DC): Open up further
China's DC strategy refers broadly to two circles of economic activity-internal and external, aims at actively foster a new development paradigm with domestic circulation as the mainstay and domestic and international circulations reinforcing each other, of which the domestic circulation will be the foundation while the international circulation will be the extension. Giving full play to the advantages of the enormous domestic markets, China will provide more opportunities for the world, attract global commodity and resources, and strengthen international cooperation and enhance the competitive advantages. Therefore, the domestic circulation is by no mean a full-scale pivot away from global economic integration or self-sufficiency, nor it is a small circulation in various regions. Instead, it is a dual circulation by broadening openness and deepening cooperation to interact more closely with the world economy and raise the efficiency of great domestic circulation. In a word, the implementation of DC must adhere to the strategy of opening up in a larger scale, among broader fields and at a deeper level.
Background of adopting DC
Firstly, DC is the active adaption to the new economic growth stage. Different economic stages correspond to specific demand and industrial structures, and technological systems, and entails development methods to keep pace with the times. On one hand, the larger an economy is, the lower its export dependence will be. China's export dependence fell from 33% in 2007 to 17% in 2019, and 82.6% of domestic output circulated domestically. On the other hand, China's per capita GDP currently exceeds $10,000, surging by 33 times in 40 years and has become a middle-income country. China's demand structure and production function have undergone drastic changes. It is required that the growth shifts to put innovation as the main driver of the economy, and constantly improve the quality of the supply side. Secondly, DC is of strategic importance to deal with the complicated external turbulence. With the rising global uncertainty caused by the Covid-19 and the increasing anti-globalization trends, the global industrial and supply chain are facing drastic shock and swelling risks. In the midst of external crises and challenges, China has to take the initiative to adjust the strategy, and seize and create opportunities. While striving to open up the international circulation, China will simultaneously bolster indigenous capabilities, enhance sustainability and resilience to maintain the steady and healthy growth of the country's economy.
The favourable conditions to implement DC
From the perspective of internal circulation, China has witnessed rapidly economic growth which has laid down an increasingly perfect foundation for the domestic circulation. From the demand side, the ever-expanding consumption and investment releases new impetus. With a population of 1.4 billion and a middle-income group of more than 400 million, China has become the largest and most attractive market in the world, contributing about 30% to the world economic growth. With the existence of the pandemic, the import demand for services such as tourism, medical treatment and education are expected to return constantly, driving the new round of expansion of domestic demand for service industries. Taking the tourism industry as an example, it is estimated that if the tourism service deficit can be converted into domestic demand based on the data in 2019, it is expected to contribute about 1.15 trillion yuan in output and directly create about 4.9 million jobs. The growth rate of the total social consumer retail sales has increased to around 15%. From the supply side, China's saving rate is still very high and has the most complete and largest industrial system and supporting capabilities in the world. China owns 130 million market players and over 170 million highly educated or professional talents. In terms of R&D capabilities, data released by OECD shows that China's investment in R&D has been second only to the US, ranking second in the world, which is even higher than the total R&D expenditure of the 28 EU countries. In 2019, China's investment in R&D recorded 2 trillion yuan ($290 billion), accounting for 2.23% of GDP, an increase of 23.7 times in 20 years. From the perspective of external circulation, China's exports reveal new resilience. In 2020, China's exports are even better than the market expectations inspite of Covid-19. According to the latest forecast by the IMF, the global economy will bottom out and rebound in 2021,with the expected GDP annual growth rate of 9.6% and trade growth rate of 18.7% comparing with that of 2020. As one of the three major hubs of the global value chains, China's external demand will also surge against this trend. China's DC will emphasize on both internationalization and self-sufficiency, bolstering indigenous capabilities to achieve a higher-level opening up. China has advantages to realize the goal of the dual circulations. As long as China makes full use of the scale and agglomeration effects as a large economy, it is sure to release huge and sustainable domestic demand momentum and simultaneously promote the steady recovery and growth of the global economy.
Key Measures to Realize DC
--Promote new circulation driven by innovation. Key measures are: enhancing the scientific and technological strength, encouraging innovation and entrepreneurship, strengthening basic research, and putting the enterprises as the main players, making breakthroughs in core science and technologies and improving the production chains; making full use of the huge market advantages and promoting the high-end industrialization of new technologies in large scale; fully stimulating the innovative vitality of talents, establishing a high-quality education system; strengthening international scientific and technological exchanges and cooperation.
--Expand supply and demand to realize a virtuous interaction. Efforts shall be made to focus on optimizing the supply structure, improving the quality of supply, giving priority to the transformation of traditional industries, developing strategically emerging industries, and accelerating the growth of modern service industries; protect property rights in accordance with the law, provide a good environment for entrepreneurs to capture new needs, develop new technologies, and enhance the core competitiveness of enterprises; accelerate the cultivation of a complete domestic demand system and strengthen the fundamental role of consumption; give full play to the key role of investment in optimizing the supply and investment structure.
--Promote a higher level of opening and deeper integration with the global economy. Further expand market access, create a fairer market environment. Enhance foreign trade, improve export quality, expand imports, and achieve balance of current account and international payments. Promote the high-quality development of the "Belt and Road" Initiative, strive to build a community with a shared future for mankind and form a stable and open global economic system.
The turbulent 2020 is passing as the end of the old development mode while the year of 2021 will witness China's DC creating a new trend in the world. China will stay committed to openness and win-win cooperation, expand all-round opening up and explore more efficient ways to turn the Chinese market into a market for the world, shared by all, and accessible to all. China's new development paradigm will provide huge growth opportunities for all the countries around the world, including Pakistan, and inject new momentum into international cooperation.
(The writer is China's consul general based in Karachi)
Copyright Business Recorder, 2020