20’th CCP National Congress Special Issue 03: China’s Socio-Economics issues

Written by Jerry Ji

Edited by Mike Wu, Hao Gao, and George Hahn

In the economic section of the 20th Party Congress Report, Chinese President Xi Jinping repeatedly mentioned the “Dual Circulation Model.” Since its initial proposal in May 2020, this economic development model has been openly advertised by Xi both domestically and internationally, including at the 3rd China International Import Expo, which took place in November 2020 in Shanghai. What is the Dual Circulation, and what exact goals is it set to achieve? 

The Dual Circulation (双循环) is an economic policy proposed by the Standing Committee of the Political Bureau of the Chinese Communist Party Central Committee (中共中央政治局常务委员会) on May 14, 2020. The core principle of the Dual Circulation model is to expand domestic demand and focus on China's domestic market, with an emphasis on improving national innovation capabilities so as to not rely on markets outside of China, while still remaining receptive to the outside world.

Since the US-China trade war under the Trump administration, American companies have moved labor-intensive parts of their supply chain from mainland China to its neighboring countries, including Vietnam and the Philippines as a result of increased labor costs. Moreover, the ongoing Covid-19 pandemic has led to a sharp decrease of international demand for Chinese goods, along with significant Chinese domestic supply shortages caused by one of the most stringent lockdown policies in the world. In order to maintain its economic growth rate, Beijing has to look into the domestic market for new opportunities.  

Despite the word “dual,” some voices at home and abroad argue that focusing on the domestic cycle will isolate China from the world economy and even result in a new era of autarky. However, according to Chenxin Zhao, Deputy Director of the National Development and Reform Commission (国家发展改革委), “the new dual-development pattern with the domestic cycle as the main body and the domestic and international dual cycles promoting each other is not a closed domestic cycle, but a more open domestic and international dual cycle, which is not only for China's own development needs, but will also better benefit the people of all countries.”

However, the projected 5.5% GDP growth rate in 2022 has proved to be unachievable, as China is facing more uncertainty, led by a series of socioeconomic issues. As a result of its zero-covid policy, economic activities across all social spectrums in China have paused for a while. Manufacturing industries are shrinking, caused by a decrease in both domestic and international demand due to inflation, high-interest rates and the Ukrainian War. Although more economic stimulus measures are to be taken by the government and central bank, it would have little effect if not exempted from the devastating impact of lockdowns and production pauses. Similarly, China has found itself harder to maintain financial stability as the Renminbi plummeted against the dollar, trading at its lowest range in decades. A weak currency has spooked investors, fueling uncertainty in financial markets and making it difficult for China's central bank to pump money into the economy. Uncertainty in China’s housing market has also led to a more than 20% decrease in housing prices in multiple cities, and how to restore investor confidence in the housing market remains a mystery. Last but not least, with the centralization of power by Xi, some of the most successful private companies in China,  often run by foreign stakeholders, are facing a lot more scrutiny: Japan's SoftBank has pulled cash from Alibaba, while Warren Buffett's Berkshire Hathaway is selling its stake in electric car maker BYD - foreign investors are pulling money out of China as state-owned companies appear to be more favored by the new government. These fundamental issues are putting the Chinese economy at high risk and vulnerability. To find a way out of the swamp, more investment in infrastructure, easier borrowing conditions for homebuyers, deregulations to the private sector, and tax cuts for households should be implemented.

Citations:

 如何理解“国内大循环”“国内国际双循环”. 中国经济时报. [2020-10-20].

 在第三届中国国际进口博览会开幕式上的主旨演讲. 新华每日电讯: 2. 2020-11-05

 習近平提「雙循環」戰略：經濟重心向內轉. 纽约时报. [2020-10-21].

[2022-10-17】

二十大报告全文. 中国政府网. [2022-10-25]

二十大前夕中国经济处于困境的五个原因. BBC News中文. [2022-10-5]