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The View
OpinionComment
Stephen Olson
Stephen Olson

The View | How China’s dual circulation strategy heralds a new era for global trade and business

  • The implications of China’s strategy need to be clearly understood by foreign governments and companies
  • Expect trade frictions to worsen and a more demanding business environment as Beijing seeks greater economic independence while maximising the world’s dependence on China

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Employees work on embroidery at a Qingdao Jifa Group production line in Shandong province on February 18. China’s leaders now believe dependence on the global system is a risky bet. Photo: Xinhua
Stephen Olson
China continues to move forward with its dual circulation strategy, first laid out at the Communist Party Politburo meeting in May last year. The strategy describes “a new development pattern where domestic and foreign markets can boost each other, with the domestic market as the mainstay”.
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Internal circulation, understood to mean the domestic cycle of production, distribution and consumption, will be the main engine powering China’s economic growth and development. This internal loop is intended to be independent and complete.

International trade and investment (external circulation) will not disappear, of course. It will, however, play a subordinate, supporting role. The entire strategy is predicated on China’s ability to upgrade its technological prowess and ability to innovate.

As foreign governments and companies try to understand the full implications of the dual circulation strategy and ponder appropriate responses, a historical perspective, a policy perspective and a business perspective will provide useful context.

China’s historical economic ascent was largely driven by trade and foreign direct investment. To succeed, China’s export and FDI-led development model required a benign global policy environment. China needed sufficient policy space and freedom to pursue its unique blend of single-party rule, state-directed capitalism and quasi-mercantilist trade practices.

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And for the past three to four decades, that benign environment has generally existed. China’s rise was welcomed and facilitated by its partners. Questions about World Trade Organization compliance or concerns over “challenges” inherent in doing business in China were glossed over. China’s global integration was broadly viewed as mutually beneficial, yielding both economic and strategic benefits.
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