China’s ‘dual-circulation’ economic model and what it means for global business

At the Fifth Plenary Session of the 19^th Central Committee of the Communist Party of China (CPC), its leadership said China will continue to increase the quality and efficiency of its economic structure to realize sustainable and heathy growth. China emphasized that a strong society and domestic economy is the ultimate foundation to support this goal. 

In the next five years and onwards, China will use the dual-circulation economic model that includes “internal circulation” to drive domestic economic recovery and growth, and leveraging “external circulation” to balance its continued efforts to open-up its markets.

In essence, unlike other fully developed economies, China’s confidence and market potential is based on its ability to effectively balance and leverage resources to find adaptive, real-time solutions across industries and regions while fostering technological self-sufficiency to address the long-existing chokepoints of inadequate and imbalanced economic development and reliance on foreign technology.

For key drivers of economic growth in the domestic market, China will continue to implement innovation strategies to not only develop domestic consumption to sustain demand, but also provide adequate support to ensure the health of the supply side, in particular manufacturing.

That said, China will continue to upgrade its industrial supply chain, and support the growth of strategic emerging industries, services, as well as the finance and digital sectors in parallel. The goal is to increase the competitiveness and resilience of the broader economy in the long run.

In terms of international markets, China may reduce its dependency on foreign trade and technology in certain sectors. At the same time, the leadership has committed to a higher level of opening up to allow China to proactively deal with rising uncertainties and instability. 

China will continue to advocate for fairness and mutuality in international cooperation. Despite bilateral tensions with trade partners, especially with the US, Chinese leadership underlined that unilateralism or decoupling would do more harm than good. China vowed to further level the play field to support sustainable trade partnerships.

In the meantime, Chinese leaders are also fully aware that social development and wellbeing are the foundations of sustainable economic development. China views its priorities such as income growth, employment, education, and public health as equally essential as the country moves forward after the Covid19 pandemic. 

China’s 14^th Five-Year Plan – to be announced early next year – will be based on the flexible and adaptive approach described in the plenum, as well the achievements of the 13^th Five Year Plan, and pave the way for China to achieve its qualitative goal of modernization by 2035.

On a related note, China is also set to escalate its efforts in food security, energy security, and cyber security, by innovating new governing structure and policy frameworks. 

FIPRA China, known locally as Yuan Associates, stands ready to assist global firms in understanding the regulatory and policy implications of these developments on your business.