A major blueprint for China’s development is in the pipeline. A plenum of the ruling Communist party in late October hashed out the outlines of the country’s 14th five-year plan for 2021–25 and long-range goals for 2035, by which time China will have “basically realised socialist modernisation”.
Earlier this year, a policy term from Beijing made international headlines: China was to foster “a new development paradigm with domestic circulation as the mainstay and domestic and international circulations reinforcing each other”. Since President Xi Jinping first articulated it in April, he has talked about it at the UN and the recent G20 summit.
A lot has been written to demystify the term and its implications for the world. So far, this much seems clear.
It is a proactive decision to pursue quality growth. China has been actively involved in “international circulation” since it started to open up more than four decades ago and especially since it joined the WTO in 2001. Labour-intensive exports relying on foreign resources and markets enabled the boom of the Asian manufacturing powerhouse. But with a per capita GDP of over 10,000 dollars now, the country faces a different picture. It has reached the point where it needs to rely more on innovation to steer clear of the middle-income trap and become a more sophisticated economy.
The dual-circulation paradigm is a hedge against a fluid and volatile international environment. The world economy has never quite been the same following the 2008 financial crisis. Populism and protectionism fueled the backlash against globalisation, while Covid exacerbated such sentiment and led to the disruption of global supply chains. China needs to brace for the worst and sharpen its economic resilience and innovation capabilities, especially in the face of tech blockades. In fact, it would be unusual if typically prudent policymakers in Beijing did not push for a self-reliance drive.
Last but not least, the new paradigm is the inherent need of a large economy with a supersize market. Consumer spending has been China’s leading growth driver over the past six years as the 400-million-strong middle class unleash their spending power. This year, China is estimated to become the biggest retail market in the world. Such vast domestic demand is a magnet for foreign capital and products, opening up new prospects for China’s engagement with the world, which will, in turn, invigorate domestic economic activities, hence the mutual reinforcement of the twin circulations.
Here’s the thing: the dual-circulation paradigm is only one big tree in the forest that make up China’s blueprint for years to come. It remains to be seen what the 14th five-year plan will include, but a flurry of domestic initiatives and diplomatic activities recently have sent a clear signal. China is determined to both boost its domestic demand and engage the international market.
On the domestic front, the Shanghai-based China International Import Expo, now in its third year, has concluded with sealed deals of over 72 billion dollars. The financial sector has opened up considerably after foreign equity caps were removed a year ahead of schedule.
On the international stage, it is surely no coincidence that highly symbolic moves have been made back to back. On November 15, China signed the Regional Comprehensive Economic Partnership (RCEP), covering roughly 30 per cent of the world’s population and economic output. Hailed as a victory of multilateralism and free trade, the trade pact is expected to boost China’s involvement in regional supply chains and counter the impact of trade protectionism. A week later, President Xi announced at a meeting of Asia-Pacific economic leaders that the country will “favorably consider” joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a signal of Beijing’s determination to embrace healthy economic competition. The move may have repercussions on a scale comparable to the country’s WTO accession two decades ago.
The EU, in particular, may spot plenty of opportunities in China’s new blueprint. The two sides have a common interest in defending free trade. Both champion necessary reform of the WTO under the able leadership of a new Director-General. Both recognise the significance of free trade for global development and poverty reduction, and have supported the extension of the G20’s Debt Service Suspension Initiative for low-income countries. With China hosting a major conference on biological diversity next year and pledging to achieve carbon neutrality by 2060, the two sides may also explore greater cooperation against environmental challenges that threaten all humanity.
Many Chinese people grew up hearing a line from The Doctrine of the Mean, an ancient Confucian classic: “Preparedness ensures success, while unpreparedness spells failure.” If there’s one thing about China that has proven naysayers wrong time and again, it is its ability to plan ahead and meet goals. International investors and businesses would do well to position themselves for opportunities in the China market. The birds that act early will catch the worm.