CPP’s ‘dual circulation” strategy to savage China imports: Natixis

September 16, 2020

HONG KONG - With minds in Beijing focussing increasingly on the upcoming meeting of the Chinese Communist Party Central Committee in October, high on the CPP's agenda will be the sketching out of a new official five-year plan for Asia's largest economy. Global financial group, Natixis, says a freshly-coined buzzword -- "dual circulation" -- looks set to play a leading role.

Natixis says what matters for China's foreign partners is that the dual circulation strategy looks set to mark a drive to reduce dependence on imports, particularly of high-end manufacturing equipment and inputs.

"While this would come in reaction to the U.S. push to decouple global supply chains, Beijing's initiative is bound to raise new concerns with Japan, South Korea, Germany and others who have been profiting from exporting intermediate goods to Chinese companies looking to upgrade their output," Natixis warns.

"At first glance, this sounds similar to the grand strategy of "rebalancing", which Beijing applied in its response to the global financial crisis. When China introduced this concept, the world still looked open to China, and multilateralism was in vogue. This is no longer a reality.

"Rebalancing in 2008 also relied on raising the contribution of domestic demand in China's growth. It was coupled with the idea that, driven by faster growth in domestic consumption, China's long-standing current account surplus would give way to a deficit as imports increased.

"This time, the notion is to ensure that more of that increased demand is met by domestic production, rather than imports.

"In this regard, the "dual circulation" strategy is a corollary of the Government's previous Made in China 2025 programme for upgrading China's technological capacities as it became possible to substitute high-end goods only due to advances in key sectors.

"This change in strategy is not a capricious move by the Chinese leadership but a hedging response to the changing nature of Beijing's relations with the U.S. as the leading global power," Natixis says.

"In just 10 years, or the duration of two five-year plans, U.S.-China relations have evolved from deep engagement to decoupling.

"China's dual circulation strategy is likely to be much more detrimental for the rest of the world than rebalancing was.

"With the leadership turning its attention to the design of the 14th five-year plan, dual circulation is likely to be enshrined as a medium-term goal, with consequences both for China and its trading partners."

www.research.natixis.com (ATI).