China’s Dual-Circulation Strategy – A Regional Gamechanger
Ever since the announcement of China’s Dual-Circulation Strategy (DCS), observers have questioned whether this strategy is “inward-looking” and whether it would affect regional economic integration. This was discussed at the 35th Asia-Pacific Roundtable hosted by the Institute of Strategic & International Studies (ISIS) Malaysia from 5 July to 7 July 2022.
H.E. Ambassador Ouyang Yujing, Ambassador Extraordinary and Plenipotentiary of the People’s Republic of China to Malaysia gave the opening remarks on the panel session 1, titled “China’s Dual-Circulation Strategy – A Regional Gamechanger”. Speakers for the session were Associate Professor Simon Tay, Chairman of the Singapore Institute of International Affairs (SIIA); Professor Justin Yifu Lin, Dean of the Institute of New Structural Economics at Peking University; Associate Professor Asei Ito from the Institute of Social Science at University of Tokyo; and Professor Jane Golley from the College of Asia & the Pacific at Australian National University.
Understanding China’s Dual-Circulation Strategy: Drivers and Concerns
Ambassador Ouyang introduced China’s DCS as one that promotes domestic demand and supply chains (internal circulation) while keeping the economy open (external circulation). Addressing the common misunderstanding that the strategy is inward-looking, he emphasised that “no country can progress in isolation from the international market.” The imperative for China is to hedge against the risks and uncertainties in the world economy.
Professor Lin concurred by highlighting China’s export ratio that had dropped from 35% in 2016 to 17% in 2019, demonstrating that China’s transition towards a domestic-focused economy is a logical continuation of existing policies. Given the relative size of the international economy to China, Professor Lin stressed that China cannot decouple from the international economy. Instead, China will develop its comparative advantages further and continue to rely on the international market for growth.
Other speakers however raised concerns. Highlighting the risks of ‘friend-shoring’ and the establishment of two exclusive systems, Professor Tay remarked that the DCS could amplify efforts to destabilise the global system. Another issue was a trust deficit in ASEAN towards China, which stands in contrast to the “great deal of [economic] interdependence,” and could be reinforced by the DCS if not addressed. Professor Ito also questioned whether the DCS could mean China’s deprioritisation of the international economy.
What does the strategy mean for Asia and ASEAN?
Reiterating that “China has no intentions of decoupling,” Ambassador Ouyang raised three key advantages of the DCS for the region:
- More opportunities: China has the second largest consumer market in the world in 2021.
- More cooperation: China can “further deepen its international cooperation with an outcome of shared benefits to all,” in areas such as digital economy and vaccine distribution.
- More benefits: which is already seen in terms of the steady increase in economic and trade exchange.
However, Professor Tay noted that while there is a possibility of benefitting ASEAN, this is dependent on whether China will engage broadly or cooperate selectively. Echoing the sentiment, Professor Golley observed that Australia is unlikely to benefit because “what might be presented as opportunities by the Chinese government might not necessarily” come to countries seen as unfriendly to China. Meanwhile, Professor Ito commented that the region is far from deglobalisation and decoupling because the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will continue to provide key platforms to uphold the rules-based order. New initiatives such as the Indo-Pacific Economic Framework (IPEF) could provide opportunities for discussions in other areas for cooperation such as digitalisation.
