Liu He Sheds Light on China’s Dual Circulation Development Strategy

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One of China’s senior-most economic policymakers has written an essay for the People’s Daily that sheds light on the goals and priorities of the recently unveiled Dual Circulation development strategy.

The fifth plenary session of the 19th Central Committee of the Chinese Communist Party held at the end of October announced that “dual circulation” (双循环) would be the main new development theme for the 14th Five Year, slated to run from 2021 to 2025.

In an essay entitled “Accelerating the Establishment of New Development Conditions under which Domestic Primary Circulation is the Main Actor and Domestic and International Circulation Reciprocally Expedite Each Other” (加快构建以国内大循环为主体、国内国际双循环相互促进的新发展格局), Liu He (刘鹤), Chinese vice-premier and head of the Financial Stability and Development Committee (FSDC), provides further detail on the significance and specifics of the new development policy.

“[Dual circulation] will be China’s economic development strategy for the 14th Five Year Plan and beyond,” writes Liu in the essay published by the People’s Daily on 25 November, highlighting its pivotal significance in three key regards:

  1. “This is an active decision to adapt to changes in China’s economic development phase.” Liu He writes that “different phases of economic development correspond to different demand structures, industrial structures and technological systems.” “Following a long period of hard work, China’s per capita GDP has exceeded USD$10,000, and demand structures and production functions have undergone major change…development must shift towards greater reliance on innovation drivers, and continually raise the quality and level of supply.”
  2. “This is a strategic measure to respond to complex changes in the international environment.” “In recent years, populism has flourished in major Western nations, trade protectionism has reared its head, and economic globalisation has met with counter-currents…the Novel Coronavirus pandemic has had a broad and deep impact, anti-globalisation forces are more pronounced, global industry chains and supply chains face major shocks, and risk is increasing…while striving to smooth out international circulation, further smoothing out domestic circulation raises the independence and sustainability of economic development and increases resilience.”
  3. “This is the intrinsic requirement for taking advantage of China’s super-large economic scale.” “The key trait of major economies is the need to achieve internal circulation, as well as provide a huge domestic market and supply capability…markets are the most scarce of global resources, and our expansion of internal demand can unleash vast and sustained drivers to drive stable recovery and growth of the global economy.”

Liu also outlined six core missions for the dual circulation development strategy:

  1. Employ the key role of driving tech innovation in smoothing out circulation. “Accelerating scientific and technological independence is key to smoothing out domestic circulation, and forging an active role for China in international circulation.”
  2. Advance the creation of supply and guidance of demand, and achieve a positive interaction between supply and demand. “Smoothing out circulation in the national economy requires vigorous optimisation of supply structures, improvements to supply quality, and firmly and unwaveringly establishing a great manufacturing power, a great quality power, a great Internet power, and a digital China.”
  3. Drive finance to better serve the real economy and improve the modern circulation system. “Finance is the life blood of the real economy….[we] must make structural adjustments to the financial system, vigorously increase the share of direct financing, reform and optimise policy-based finance, improve policies for financial support for innovation, and employ the pivotal role of capital markets in driving the high-level circulation of tech and capital in the real economy.”
  4. Drive new urbanisation and the coordinated development of urban and rural regions. “China is currently in the middle of a rapid urbanisation development phase…this process will both generate huge demand as well as increase effective supply. [We] must employ the linked roles of central cities and urban clusters, implement regional strategies, establish modernised capital city conurbations, and form a raft of new growth points.”
  5. Drive expansions in employment and raise income levels. “The expansion of the middle-income demographic will play a fundamental role in forming a great power domestic market and driving structural upgrades. [We] must uphold common prosperity development, improve income allocation, expand the middle-income demographic and strive to make growth in household incomes outpace economic growth.”
  6. Drive higher levels of external opening, and deepen integration with the global economy. China will “further expand market entry and attract foreign investment at a higher level,” as well as “drive the establishment of a common human collective and form a tighter and more stable global economic circulatory system.”

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