Much is at stake with Beijing’s new “dual circulation” drive, buzzwords coined by President Xi Jinping to describe a push for more domestic consumption while maintaining strong contacts with major trading partners.
The de-globalization and protectionist headwind facing Beijing, compounded by Washington’s belligerence, has apparently forced Beijing to change its economic policy.
Xi first broached the “dual circulation” idea while presiding over a Communist Party Politburo meeting at the end of July. He told an auditorium full of senior party cadres that internal circulation, or domestic demand-driven growth, should now take precedence over chasing exports as demand from the Covid-19-battered West dries up. But he added that China is not going to forsake its long-standing trading ties with the rest of the world.
But “internal circulation” as the new impetus for growth has faced incredulity. Questions have been raised if Xi is steering China to the old path of seclusion as ties with Western powers sour.
Foreign investors and export-oriented manufacturers counting on Beijing’s continued opening-up are getting jittery.
Several business associations, including the American Chamber of Commerce in China and the Hong Kong General Chamber of Commerce, have called for more policy clarity, stressing that international trade and foreign investment are key to China’s success.
In response, state media including Xinhua and other news outlets have since last week run op-eds pledging policy continuity as well as “no regression into seclusion,” especially when comparison has been made between Xi’s internal circulation drive and the insular, self-fettered policy adopted during the late Ming and Qing dynasties as well as the hermit state under Mao Zedong’s rule.
An editorial by the Guangzhou-based Southern Reviews magazine, syndicated nationally by Xinhua and the People’s Daily, predicted that having reaped tremendous benefits from Deng Xiaoping’s opening-up policy in the past four decades, Beijing would never take a step backwards.
“The ‘dual circulation’ paradigm is conceived to counter the United States waging a trade war and has nothing to do with any closed-door policies,” the article said. “Beijing is not giving up on international trade yet when external demand is decimated by Covid-19 and protectionism, internal circulation is the way forward to keep the Chinese economy ticking,” said the article.
Zhang Chunyu, a senior research fellow with the official think tank Chinese Academy of Social Sciences, told Asia Times that it would be impossible to corral an open market already deeply integrated into the global market and supply chains.
“A complete revision is unimaginable as the more open an economy is, the more powerful the market force becomes. The dividend from opening-up and globalization is still there and worries about Beijing divorcing its economy from the global market are unwarranted,” said Zhang.
Furthermore, there are also fresh doubts about the sustainability of Xi’s internal circulation when Beijing pivots to domestic demand and consumption to help the economy shake off its malaise.
The world’s largest consumption market by value of total retail sales is showing signs of fatigue. The Economic Daily reported that, having bounced back from the all-year low in February and March in the thick of the epidemic, consumer spending for August dropped slightly on a month-on-month basis. The broadsheet also noted that July’s nationwide unemployment rate of 5.7% was a gross underestimate.
Media reports about fresh graduates from China’s elite Peking University and Tsinghua University vying to take up offerings as frontline community workers in small counties have also caused a commotion about how tepid the jobs market has become.
As Beijing changes tack to fire up demand, observers warn that a dearth of concrete measures and reforms to spur spending and job creation is slowing Xi’s internal circulation, and, worse still, the specter of “involution” is looming.
The term “involution” is trending on China’s social media. Economist Huang Zongzhi of China Renmin University borrowed the word from US anthropologist Clifford Geertz’s work Agricultural Involution.
It refers to the danger of China’s worsening social and economic complexity and inefficiency in the absence of significant technological or political change. The concern is that when emphasizing internal demand, Beijing has no blueprint for reforms to spawn quality jobs, consumption or growth.
In another op-ed, the Southern Reviews magazine asked if China’s seemingly massive domestic market had peaked and was on the wane, despite Xi canvassing the prospect of internal circulation.
“Will Beijing continue to pour investment into technologies, industries and businesses that ought to be winnowed out, merely for the sake of jobs, growth and internal demand?” asked the magazine.
He Fan, a professor with Shanghai Jiaotong University, said that one way to avoid the trap of involution is for export-oriented businesses to rejig and upgrade their production and marketing to cater for domestic consumers.
“When Beijing aims to encourage people to spend the way out of recession and businesses to invest more, the key issue of ‘dual circulation’ here is how the wide swath of China’s export-oriented enterprises should upgrade products and services to woo domestic consumers, in particular the swelling ranks of China’s middle class, whose spending power is there but are becoming more discerning with their purchases,” He said.