Dual circulation: China’s radical new plan to transform its economy could have global impacts - NEWS.com.au

It doesn’t sound all that riveting: the fifth plenum of the 19th Communist Party of China’s central committee.

Nor does the 14th five-year-plan that sprung from the rubberstamping event, held in Beijing at the end of last month.

But buried beneath the bureaucratic bumpf is a radical new plan that China hopes will catapult it into an unassailable economic position, dominating markets and being able to shrug off US trade disputes. It also reveals an uncomfortable truth for Beijing.

It all revolves around two, seemingly benign words: “dual circulation”. Like “belt and road”, it’s a phrase from China that could soon become very common knowledge indeed.

“It may not be war games, but China wants to win this battle,” a China watcher told news.com.au.

And it’s a battle that could have severe consequences for Australia as our leading export partner increasingly looks inward for the resources it needs to grow.

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Every five years, the People’s Republic sets out a wide ranging economic and social strategy. As a centralised Communist economy, these plans can have a huge effect on everyday life in China and, because of its financial muscle, the world as a whole.

A pledge by Chinese President Xi Jinping to make the country carbon neutral by 2060 captured headlines at the unveiling of the 2020-2025 plan.

But it’s the dual circulation strategy that could have a more far reaching effect.

“It’s Xi’s solution to the US and bilateral tensions,” Professor Jane Golley of ANU’s Centre on China in the World told news.com.au.

At its core, dual circulation would look to overcome this weakness. It would split China’s economy into two spheres that would mean it was less dependent on goods and trade from overseas.

The first “circulation” is the domestic economy. Growing this will mean the nation is less prone to global economic shocks. In addition, making more stuff at home – from semiconductors to soy beans – will mean China won’t be stuck when the US or other nations choke off supply chains of vital products, which is happening now.

The second circulation is the international economy that China still intends to engage in.

Prof Golley said while the two circles may be close, they are also separate and the degree to which they interact could wax and wane depending on international tensions.

“China has never been more global that it is now. So, this is not about completely cutting off both circles but most fundamentally a push for technological self-sufficiency particularly in those sectors where there are tensions with US.

“There might be normal integration in times of non-crisis but more careful and different forms of integration in times of crisis,” she said.

It’s not a wholly new theory – but it's the first time it has been so explicitly enshrined as the nation’s policy.

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CHINA HAS BECOME VULNERABLE

Since China joined the World Trade Organisation in 2001 its businesses have made a motza. Brands such as Lenovo, Huawei, China Southern and TikTok have emerged and become world famous. In Australia, Chinese firms own companies including EnergyAustralia and Bellamy’s milk.

It’s not all one-way business though. As the world has become addicted to Chinese products, the uncomfortable truth for Beijing is that China has become more dependent on commodities that chiefly come from overseas – soy beans from the US, semiconductors from Taiwan and the US, steel and steak from Australia.

As relations worsen with trading partners, these vital supply chains into China have become vulnerable. The US, for example, has restricted exports of semiconductor parts, fearful China might acquire under the guise of civilian purposes but use them in military equipment instead.

Dual circulation would enable a technological “decoupling” where China no longer relied on imports of commodities, such as hi tech components, where the US holds many of the cards.

By 2035, China wants to produce far more semiconductors, crude oil, rare earth, pork, grain and more.

“That taps into Beijing’s great insecurity around food and energy. They don’t grow enough food to feed their population. If shipping lanes are choked off, they literally face a starving population.

LOCK OTHER NATIONS INTO CHINA

Some China experts have said that dual circulation will also allow Beijing to exert indirect pressure on overseas governments.

This is because the remarkable recovery of China from the pandemic makes it an attractive place to invest for foreign firms. If overseas companies are locked into the international circuit, with all the profits and jobs that can bring, they may lobby their nation’s leaders to go easy on China when it comes to diplomatic crises.

Beijing has form in using economic pressure on other governments. In 2017, Korean-owned shops were closed down in China and the numbers of Chinese tourists visiting Korea plummeted when Seoul displeased Beijing.

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AUSTRALIA SHOULD WORRY

If the new theory of dual circulation is a success, Australia could suffer economically.

China is Australia’s biggest export partner but diplomatic relations could hardly be worse with the Chinese embassy this week giving reporters a list of reasons why Beijing is miffed, including the temerity of Australia having a free press.

China has taken to adding tariffs to some Australian goods and blocking some imports.

“China was extremely offended when we rejected Huawei (from being part of technology upgrades due to security concerns) which is seen as a source of national pride and a champion to become globally competitive,” said Prof Golley.

“There are still a lot of Australian goods they will continue to need in the years ahead but the long-term strategy will be to reduce reliance on us.

“China’s green growth, for instance, will mean a decline in demand for Australia resources.”

However, Prof Golley said, there could be “new opportunities” to do business between the two countries.

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‘A BATTLE OF TECHNOLOGICAL PRIMACY’

Writing for US think tank the Centre for Strategic and International Studies Andrew Polk and Jude Blanchette said if dual circulation bore fruit, the impacts on the global economy would be “momentous”.

“While Chinese policymakers and commentators have been clear dual circulation does not mean a full-scale pivot away from global economic integration or reliance on external demand, even a marginal shift by China away from its focus on mercantilist export practices could fundamentally reshape global trade and investment flows.”

Could dual circulation not only allow China to reduce its reliance on the outside world but also rival, and even dominate, some industries where it’s been so far been lacking?

“This is the most critical question. It’s a battle of technological primacy between the US and China,” Prof Golley said.

“It’s not a war game but they want to win this battle”.

In the past, the assumption had been that China’s planned economy and its repression didn’t lead to the innovation, and the money that flowed from that, seen in the US and other western nations.

And yet China’s economy has continued to grow said Prof Golley.

“China was seen as doomed to fail. But when you have the party pulling together the private sector, universities, industries and others into one mission – and you then put a lot of money behind it – you could well win.”

Dual circulation may be an abstract term now, but Beijing will be hoping it’s a major trump card that will propel it to the top of the global economic ladder.

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2020-11-22 19:33:51Z
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