China is pursuing a new development pattern of dual circulation, which smooths domestic circulation and lets domestic and international circulations reinforce each other. To facilitate the new development pattern, China needs to expand domestic demand, reshape its value chain, and boost a high-level opening up.
Expanding domestic demand
“We must establish a new development concept, deepen supply-side structural reforms, and shift the mode of economic growth from relying on factor input to relying on factor efficiency and total factor productivity to drive economic growth, so as to transition from high-speed to high-quality development,” said Liu Wei, president of Renmin University of China.
To this end, domestic circulation is the foundation, and the core of upgrading the industrial chain lies in innovation, including technological innovation to propel industrial competitiveness, and institutional innovation that can improve market mechanisms. Only in this way can a unified market cycle truly take shape, Liu noted.
To promote the domestic circulation, it is necessary for China to make use of its advantages as a major economy, expand the domestic market, accelerate the market-based reform of factors of production, and increase residents’ property income, said Chen Binkai, dean of the School of Economics at the Central University of Finance and Economics.
“The huge domestic demand is our country’s biggest advantage,” said Wang Changlin, president of the Academy of Macroeconomic Research. It is important to thoroughly implement the strategy of expanding domestic demand, and strengthen the endogenous driving force for China’s economic development.
Cheng Shi, chief economist at ICBC International, said that the establishment of the new development pattern will bring important changes to the Chinese economy, both on the demand side and the supply side. On the demand side, China still has much room for consumption upgrades and investment optimization. With the establishment of the pattern of dual circulation in the next 15 years, China will naturally enter a pattern of doubling domestic demand.
Reshaping value chain
The current global industrial chain and supply chain are facing reconstruction, which brings challenges to the modernization of China’s industrial chain and supply chain.
Liu noted that to improve the modernization level of the industrial chain and supply chain is to connect industries and various links smoothly on the basis of higher quality and competitiveness, and to form a balance between supply and demand in terms of the total amount and structure, through market forces. The smooth flow and circulation of the industrial chain and supply chain, based on high quality and high competitiveness, is the market basis for the formation of a large domestic circulation.
In the process of double circulation, it is necessary to enhance the government’s role in top-level design, unified layout, organization and coordination, while encouraging enterprises to deliver as the main players in technological innovation, Liu suggested. It is necessary to consolidate basic research, and accelerate the transformation of scientific and technological achievements into actual productivity. While striving to enhance the capacity to conduct innovations independently, it is also important to uphold open innovation, and strengthen international scientific and technological exchanges and cooperation.
The current global value chain is divided into three links, including R&D and design, brand marketing, and manufacturing, Cheng said. In this regard, China also needs to cultivate its own scientific and technological innovation forces in the field of R&D and design, and cultivate its own influential domestic brands in the marketing field, so as to exert a more profound impact on the global value chain.
To enhance competitiveness, it is necessary to break through bottleneck constraints of the traditional value chain and the division of labor, and facilitate a new round of economic globalization dividends.
Liu Yuanchun, vice president of Renmin University of China, mentioned that according to calculations, as long as 75% of the factor market is deeply reformed, the average annual growth rate in the next 15 years can be increased by 0.72 percentage points; if the factor market reform progresses to 90%, the potential growth rate will increase by 2.4 percentage points.
“This shows that as long as China adjusts, reconstructs, and deepens past strategies through the new dual circulation strategy, it can totally increase its potential growth rate,” Liu Yuanchun observed.
Enhancing opening up
A high-level opening to the outside world is fundamental for boosting the new development pattern. To promote dual circulation, we must stick to opening up to the outside world from a wider range, broader area, and on a deeper level.
Yu Miaojie, deputy dean the National School of Development at Peking University, said that one focus of the domestic circulation is to build a new pattern of comprehensive opening up and promote trade liberalization. Two important starting points for the new pattern of comprehensive opening up are the construction of pilot free trade zones, and free trade ports.
Since launching the pilot free trade zone in Shanghai in 2013, China has now established 21 free trade zone pilots.
Cheng said that under the impact of the COVID-19 pandemic, the old global economic model has come to an end. We need to focus on our development and further enhance internal motivation for high-quality development.