China’s “Dual Circulation”

Photo by Chastagner Thierry on Unsplash

Despite much of the current discussion about China’s “dual circulation” strategy centering on increasing domestic consumption and developing indigenous technologies, particularly chip-making, I think, in order to get a better understanding we would have to treat both domestic consumption and exports as one process of circulation. The “dual circulation” connotes the transformation of one flow into another. The basic idea of Chinese dialectics, for example, the transformation between Yin and Yang (阴阳), or the rising of the moon and setting of the sun, is that each action constitutes its opposite, forming a cycle, or circulation.

Chinas “dual circulation” strategy is to link increased domestic consumption with Chinese exports, with implications for foreign exporters that want to sell into the large Chinese market. If Chinese consumers have the ability to spend more, for example, with a strengthening Yuan, this won’t just benefit local Chinese businesses. In a global supply chain, intermediate Chinese components often arrive in places like the US and Europe to be part of a larger or more advanced production. These high-value finished goods will be in more demand in China if Chinese consumers can buy them. Increasing domestic consumption benefits both the domestic economy and Chinese and foreign exporters.

One of the global economic pillars has been America’s ability to absorb worldwide goods such as Japanese cars and South Korean smartphones. While the U.S. economy is no longer the largest producer or manufacturer, it still has the strongest consumer base in terms of spending power, as shown with the recent history of easy credit and low interest rates. Despite the rhetoric of Trump, American deficit trade balance is actually a strength.

With China’s “dual circulation” strategy, the country aims to not only increase consumption, thereby GDP, but also to provide an alternative global market to the US. It’s one way hard economic power can translate to “soft power”.

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