Dual Circulation: President Xi’s Trump Card
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A post-pandemic world in the eyes of Chinese President Xi Jinping is characterized by sustained international turbulence and threats to Chinese economic advancements. The coronavirus pandemic and heightened Sino-American tensions have pressured China to adopt a new strategy that emphasizes domestic self-sustainment and innovation as the primary source of economic growth.
Xi has proposed a new reform mechanism dubbed “dual circulation.” The plan is instrumental to China’s next five-year development plan and will likely be rolled out next year. The main goal of this dual circulation policy is for China to rely on domestic demand and innovation as the primary sources of economic activity while using foreign markets and investors as secondary tools for growth. Xi has proposed to support domestic service industries, innovation hubs, and hopes to ultimately reduce China’s reliance on foreign-made microchips and key components in tech manufacturing.
The initiative echoes China’s previous commitments to modernize and overhaul its economy. In the past, China has proposed several strategies focused on restructuring its domestic economy, innovation, and infrastructure, such as Mixed-Ownership Reforms (MOR) and the 2006 domestic consumer spending overhaul; however, these efforts have seen limited success. Is the dual circulation strategy another ambitious policy proposal that sounds promising on paper, but ultimately fails to deliver on its expectations once executed? One could argue that Xi’s intention with dual circulation is unique in comparison to past reform initiatives. The strategy is founded on a motivation to preserve national security and stability in China due to the unpredictable nature of today’s global trade climate. At any given point, new U.S. restrictions on Chinese technology could significantly fracture its economic operations. Thus, Chinese leaders feel that this re-orientation of their economy towards self-sustainment is necessary to prepare for the worst-case scenario.
Critics in the West feel that China is regressing in its advancements by reneging Deng Xiaoping’s efforts of “reform and opening up” the economy. The success of dual circulation relies on China’s ability to find a balance between prioritizing domestic consumption while still incorporating foreign markets and investors in its economy. Furthermore, the Chinese government needs to address economic inequality in the country to increase disposable income and consumption— an issue that leaders have historically failed to address. Is the Chinese government fully committed to acknowledging and dissembling socioeconomic barriers to implement dual circulation? Chinese leaders must consider these factors to successfully enact their economic goals.
