China’s Dual Circulation: Finally, defined!
In late 2020, China announced its economic policy of “Dual Circulation” and since then the terminology as become a hot word within China. It seems after the reforms of the 1980s, China is going to witnesses another round of crucial reforms. As the western analysts are still struggling to understand what the Chinese leadership has exactly committed to, an important study has been published by a team of scholars from Nanjing University of Information Science and Technology, and Nanjing University of Aeronautics and Astronautics. It is the first study of its kind in English language.
The study attempts to summarize the information available to us through data and makes a strong case for the “Dual Circulation” Strategy. The study argues that the new strategy is likely to succeed despite all challenges and problems because the socio-economic conditions on the ground are conducive and point to the same direction in which the Chinese leadership has committed to leading the people. Considering the fact that China is about to overtake the US as the world’s largest consumer market, the current study is of significant importance for everyone who is concerned with the developments in China, a country that is the world’s most dominant trading partner having crucial trading relations with most of the nations and where developments have consequences for almost every nation that is connected with it.
international and domestic markets in the economic policy, says the study.
For the first time, the scholars have presented first comprehensive definition of “Dual Circulation.” The study states, “Dual circulation is the process of realigning the weights (priorities) of the economic resources to achieve sustainable economic development through domestic consumer demand.” They further argued that the optimum balance of these resources is the source of comparative advantage for a domestic economy in the global market. One may argue that in such a self-reliant economic development model, domestic circulation acts as a lever that balances the weights of international and domestic markets in the economic policy. Also, the key force that shifts the position of this lever (domestic circulation) are the uncertainties in the international market that influence the international circulation, and thus the relationship between two markets
The study argued that just as processing trade or export-led growth has given rise to severe structural imbalances highlighted by underused savings, sluggish growth of residential income and domestic consumption and a heavy reliance on investment that are becoming inefficient, with time problems with heavy dependence on consumption-led growth may also come to notice. Economic growth based on overconsumption and lack of savings can cause economic bubbles, busting of which can cause economic recessions, as happened in the USA during the Financial Crisis of 2007/2008. Overconsumption can lead to a series of crises and usually turn out to be a solution that is worse than the problem itself. Thus, maintaining an optimum level of consumption rate and saving rate is crucial to the success of “Dual Circulation” policy. By benchmarking Japan and the USA, efforts should be made to bring private consumption expenditures between 55% and 70%, total consumption expenditures between 75% and 83% and saving rate between 16% and 25%.
The study suggests the authorities that policies should be enforced that increase the share of the citizens’ income to the primary distribution of income while providing them with high-quality avenues where they can spend their excessive savings. Here, improvement in the social security net and public services and the up-gradation of the service sector are of critical importance. Also, as the “Dual Circulation” policy boosts the service sector, which is nearly impossible without the participation of the female labour force, there is a need to reform work policies to realize the lowering of working time per worker in China (and also to curb the excessive-work cultures like “996”), improve the birth rate and welcome foreign skilled workforce. Therefore, China needs a new engine of economic growth and a set of policies to boost domestic consumption at home that can together pave the way for China’s journey to sustainable development and improve the resilience of its socioeconomic system. It is very likely the policy of “Dual circulation” will facilitate this “great transition”.
