China's New "Dual Circulation" Strategy: Two Views: I. "Dual Circulation" Is China's Strategic Pivot to Prepare for Long-Term Competition With the United States.

• Author: Lo, Chi

The emergence of a new paradigm.

Chi Lo is a Senior Economist at BNP Paribas Asset Management and author of China's Global Disruption: Myths and Reality (Emerald Publishing, 2021).

Beginning in May 2020, China launched a so-called "dual circulation" strategy to counter geopolitical hostility by strengthening the domestic sector while still engaging, but reducing reliance on, the external sector in order to sustain stable growth and resilient investment in the face of strategic competition with the United States. This move reflects China's new worldview that de-globalization is forcing a structural shift in the global supply chains and prompting it to counter de-coupling by industrial upgrading and import substitution. Such an inward policy shift will create disruptions to the global markets. This new policy is reminiscent of China's supply-side reform that started in 2015 and is an evolution of Beijing's reform motto of using the market as a strategic tool for making changes under the guidance of the Party. This has far-reaching political and economic implications for the world.

THE "DUAL CIRCULATION"

China's dual circulation policy reflects Beijing's new belief that China has entered a new paradigm of increasing global uncertainties and geopolitical hostility that, ironically, would create new opportunities for China as U.S. global leadership flounders. The dual circulation framework has two elements: the "external" and "internal" circulations.

The external circulation is a paradigm focusing on the United States as the global demand hub which is built on globalization and reflects America's post-World War II global leadership and international cooperation. But this model is failing, in China's view, due to the withdrawal of the United States from the global stage.

This has led China to believe that de-globalization, leading to economic de-coupling and breaking up of the global supply chains, had become a secular trend that could threaten its long-term stability. Rising geopolitical tensions and exogenous shocks such as Covid-19 have aggravated this global structural change. Hence, China can no longer rely on global integration as a growth driver; it must focus on domestic demand, or the internal circulation, to hedge against external risks.

China's new worldview sees the country moving into a new paradigm where the global system would be divided into three main regions: Asia, North America, and Europe, with each region led by a regional...