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