News Center



Yao Yang: Interpreting Dual Circulation

Oct 16-2020   



To understand the buzzword ‘dual circulation’, two sentences are of vital importance, said Prof. Yao Yang, Dean of the NSD, in a recent open class.

 

The first one is ‘(we) should firmly seize the strategic fulcrum of expanding domestic demand’. China has been continuously expanding its domestic demand for about ten years, but its elevation to a strategic level signals a significant change, he said. How to further tap the potential of domestic demand deserves serious thoughts.

 

The second sentence is ‘accelerating the formation of a new development pattern featuring internal circulation as the main body and the mutual facilitation between internal and international circulation’. In 2006-2007, Chinese export reached its highest share of GDP but has since decreased in ratio. Therefore, internal circulation has become the main body over the last ten years or so. What the sentence particularly emphasizes is the mutual facilitation of internal and international circulation for the formation of a new development pattern.

 

Prof. Yao approached this historic strategy from three aspects. First, he laid out the things that have been done in China’s economic re-balancing since 2010. That offers the foundation for more profound understanding of the dual circulation. Second, he dissected the possible impact of the changes in international environment on the Chinese economy. Overall, he felt that the issue has been overblown by the media. Third, based on the previous analysis, he offered his take on what China should do next.

 

The first decade of the new millennium saw the robust growth of the Chinese economy, while the second decade witnessed its downward adjustment. From 2001 when it joined the WTO to 2008 when the financial crisis broke out, China expanded its export by an annual rate of 29% and total export volume shot up by five times in that span. Its GDP growth, at double figure, led the world. Beijing and many other Chinese cities enjoyed a facelift through unprecedented urban construction. Immense wealth was created at an astonishing speed but income distribution was highly uneven. Besides, structural imbalance resulted in excessive savings and declining consumption.

 

In the adjustment decade of 2010-2020, the second industry has had a decreasing ratio of GDP while the tertiary industry has moved in the opposite direction. Of the troika of GDP, consumption has increased its weight – contributing up to 70% of GDP growth – while investment and export have decreased proportionally. However, by now the thrusting power of domestic demand is already weakening, said Prof. Yao. He cautioned that further increasing domestic demand should not come at the expense of lowering savings rate; otherwise, capital accumulation will be negatively affected, resulting in less funding for tech advancement.

 

As for the impact of the changes in international environment, various proofs are showing that the so-called ‘de-China’ is not materializing. China has regained its position as the largest trade partner of the US, and China’s share in the global economy has gone up. Though some high-tech firms are seriously affected by US policy, a much-speculated total breakdown in the industrial chain is not happening, and foreign-invested enterprises are not leaving China in droves. Much of these can be explained by the fact that the underlying logic for global division of work and trade remains unchanged and that western governments only have limited influence on their enterprises. A tech de-coupling is highly unlikely to happen due to such factors as the complexity of modern technology and standards. Neither will a financial decoupling or a complete preclusion of China from the greenback system.

 

To achieve the new development pattern of dual circulation, Prof. Yao proposed several measures. First, he advocated getting ready for a new economic cycle, which has been disrupted by de-leveraging and subsequently the pandemic. Second, proprietary innovation should be pushed forward in critical areas. Third, efforts should be made to increase both the income and consumption of low-income group as part of structural adjustment to release more driving force. Fourth, the pace of urbanization should be sped up and ultimately the handful of city clusters might host 60-70% of China’s population.

 

Prof. Yao cautioned against turning the bottom-line mentality into routine policy and relinquishing international circulation. On the global stage, he advocated being proactive in building rule-based relationships with care for global benefits. In rule making, China can take on more duty, he said.

 

Yao Yang: Interpreting Dual Circulation

Oct 16-2020   



To understand the buzzword ‘dual circulation’, two sentences are of vital importance, said Prof. Yao Yang, Dean of the NSD, in a recent open class.

 

The first one is ‘(we) should firmly seize the strategic fulcrum of expanding domestic demand’. China has been continuously expanding its domestic demand for about ten years, but its elevation to a strategic level signals a significant change, he said. How to further tap the potential of domestic demand deserves serious thoughts.

 

The second sentence is ‘accelerating the formation of a new development pattern featuring internal circulation as the main body and the mutual facilitation between internal and international circulation’. In 2006-2007, Chinese export reached its highest share of GDP but has since decreased in ratio. Therefore, internal circulation has become the main body over the last ten years or so. What the sentence particularly emphasizes is the mutual facilitation of internal and international circulation for the formation of a new development pattern.

 

Prof. Yao approached this historic strategy from three aspects. First, he laid out the things that have been done in China’s economic re-balancing since 2010. That offers the foundation for more profound understanding of the dual circulation. Second, he dissected the possible impact of the changes in international environment on the Chinese economy. Overall, he felt that the issue has been overblown by the media. Third, based on the previous analysis, he offered his take on what China should do next.

 

The first decade of the new millennium saw the robust growth of the Chinese economy, while the second decade witnessed its downward adjustment. From 2001 when it joined the WTO to 2008 when the financial crisis broke out, China expanded its export by an annual rate of 29% and total export volume shot up by five times in that span. Its GDP growth, at double figure, led the world. Beijing and many other Chinese cities enjoyed a facelift through unprecedented urban construction. Immense wealth was created at an astonishing speed but income distribution was highly uneven. Besides, structural imbalance resulted in excessive savings and declining consumption.

 

In the adjustment decade of 2010-2020, the second industry has had a decreasing ratio of GDP while the tertiary industry has moved in the opposite direction. Of the troika of GDP, consumption has increased its weight – contributing up to 70% of GDP growth – while investment and export have decreased proportionally. However, by now the thrusting power of domestic demand is already weakening, said Prof. Yao. He cautioned that further increasing domestic demand should not come at the expense of lowering savings rate; otherwise, capital accumulation will be negatively affected, resulting in less funding for tech advancement.

 

As for the impact of the changes in international environment, various proofs are showing that the so-called ‘de-China’ is not materializing. China has regained its position as the largest trade partner of the US, and China’s share in the global economy has gone up. Though some high-tech firms are seriously affected by US policy, a much-speculated total breakdown in the industrial chain is not happening, and foreign-invested enterprises are not leaving China in droves. Much of these can be explained by the fact that the underlying logic for global division of work and trade remains unchanged and that western governments only have limited influence on their enterprises. A tech de-coupling is highly unlikely to happen due to such factors as the complexity of modern technology and standards. Neither will a financial decoupling or a complete preclusion of China from the greenback system.

 

To achieve the new development pattern of dual circulation, Prof. Yao proposed several measures. First, he advocated getting ready for a new economic cycle, which has been disrupted by de-leveraging and subsequently the pandemic. Second, proprietary innovation should be pushed forward in critical areas. Third, efforts should be made to increase both the income and consumption of low-income group as part of structural adjustment to release more driving force. Fourth, the pace of urbanization should be sped up and ultimately the handful of city clusters might host 60-70% of China’s population.

 

Prof. Yao cautioned against turning the bottom-line mentality into routine policy and relinquishing international circulation. On the global stage, he advocated being proactive in building rule-based relationships with care for global benefits. In rule making, China can take on more duty, he said.