In recent years, profound changes in the international environment, as well as the outbreak of the COVID-19 pandemic, have brought new challenges to China's economic and social development. Against this backdrop, the central government put forth a new development pattern-the “dual circulation” strategy-in May 2020. In this strategy, internal circulation will be the main focus, while both internal and external circulation will be mutually reinforcing. An accurate understanding of this new developmental framework is crucial in facilitating the next stage of China’s socio-economic development. In the establishment of this new framework, we must stress on the decisive role of the market in allocating resources, and better integrate the domestic and international markets. Furthermore, we must promote the further opening of markets and inter-connectivity in both domestic and international fronts, and adopt new methods to deepen economic reform and opening to the outside world.
Internal circulation will be the main focus of this new “dual-circulation” strategy. This is due to two reasons, namely in consideration of long-term trends in economic development, as well as the need to adjust our focus according to the current international environment. In view of economic trends, the resources, factor endowments and actual demand of a small economy are often quite different, hence determining its reliance on its external environment. On the contrary, large economies are more likely to rely on domestic supply for its factors of production. For example, large and open economies such as the United States and Japan have had relatively low participation in international trade, where they did not depend heavily on foreign investment. With the rapid growth of its economy, China's dependence on foreign trade continued to decline after reaching a peak of 65% in 2006, reaching 35% in 2019. The proportion of foreign capital in fixed assets investment has dropped from about 15% in 1994 to less than 1% at present. The proportion of processing trade has also fallen from 53% in 1999 to 25% in 2019. These data indicate that the internal circulation of China's economy has been continuously strengthened, where this trend is expected to continue in the future.
In recent years, the global economy has encountered some difficulties, bringing about challenges to the effective implementation of external circulation. Among them, the COVID-19 pandemic has seriously affected the flow of products, capital and personnel between countries, whereas global economic recession caused by the pandemic has significantly affected external demand. At the same time, a small minority of countries continue to implement unilateral policies, hindering the internationalization of value chains, industrial chains and supply chains, and causing disruptions to economic and financial exchanges such as cross-border investment. In this new context, it is necessary for China to make periodic adjustments, placing its focus more on internal circulation and solving its relevant problems. Nevertheless, this change of focus is by no means implying that China is giving up on external circulation.
As the internal circulation of the economy strengthens, external circulation will still play a key role in achieving high-quality development, where we will have to pay more attention to quality rather than quantity. In order to achieve high-quality development, it is essential to participate actively in the international division of labor and possess the courage to compete with the world's best companies. External circulation not only provides a boost for high-quality development, but also provides a form of objective measure and external incentive. At the same time, we should acknowledge that China’s future import and export growth rate and the inflow of foreign capital will likely lag behind the growth rate of China's total economy, and will be slower than the growth rate of the domestic market. As China continues to improve its level of openness, it will not be appropriate to forcibly pursue high-speed growth purely based on foreign trade indicators.
To strengthen internal circulation, it is necessary to emphasize the further opening of markets in order to connect regional markets within China and establish a unified domestic market. In particular, it is necessary to improve economic efficiency by promoting the flow of labor, capital, land, intellectual property rights, data and other factors of production. The crux is to establish a unified form of internal circulation, instead of the internal circulation of each province and city in their respective regions. Therefore, it is particularly essential to avoid selfish local practices and unnecessary intervention in the market under the hoax of internal circulation. Also, not only can strong internal circulation strengthen and promote “Made in China”, it will in turn advance the development of external circulation. In this case, the volume of the Chinese market will attract foreign companies to manufacture in China, and foreign investment will help both China and the world economy. As one of the world's most important centres of consumption and production, China should continuously strengthen its global influence and consolidate its position in global value chains, industrial chains and supply chains.
In the Fifth Plenary Session of the 19th Central Committee of the Party, it was proposed that China will “achieve sustained and healthy economic development with obvious improvement in quality and efficiency” during the period of the “14th Five-Year Plan. By 2035, China should have achieved the long-term goal of socialist modernization and the level of moderately developed countries in terms of per capita GDP. In addition, great strides should have been made in its participation in global cooperation and competition. In order to achieve the developmental goals of the “14th Five-Year Plan” by 2035, it is important to accelerate the implementation of this new dual-circulation strategy. Hence, this will require us to expand the access and integrate the roles of domestic and foreign markets, where the market will play a decisive role in resource allocation to increa
