China’s „new development model“

Uwe Hoering www.beltandroad.blog December 15, 2021

With the ‘Dual Circulation Strategy’ (DCS), the government in Beijing has once again thrown a stone into the water to test the effects of the announcement. However, after a few critical articles, the international discussion has remained surprisingly quiet. Yet the deliberations could have far-reaching implications for further globalization and China’s leading role in it.

In May 2020, President Xi Jinping personally announced a “new development model,” the ‘Dual Circular Strategy’ (South China Morning Post, November 11, 2020). Its importance was further underscored by dedicating a separate chapter to it in the 14th Five-Year Plan (2021-2025).

What is DCS?

The ‘dual cycle’ refers to an integration and closer coordination of national and global economic policies – a globalized version of ‘walking on two legs’, the term used under Mao Zedong to describe the simultaneous development of agriculture and heavy industry.

The ‘inner cycle’ is intended to expand domestic demand and accelerate the development of technology and modernization. This is to reduce the heavy dependence on the U.S. and other ‘hostile forces’ in foreign trade and technology and know-how.

However, this is by no means a question of autarky or self-reliance, i.e., extensive independence or even autonomy and a consistent decoupling, because the second, ‘external circulation’ concerns a rather intensified interlinking with global markets. Belt&Road, which was already framed as a ‘Spatial fix’ (Harvey) for domestic problems of the Chinese economy such as the accumulation crisis, overcapacities in key sectors of the economy and falling profit rates, takes on special significance here: the expansion of export markets and investment opportunities, the relocation of wage-intensive or environmentally harmful industries to low-wage countries along Belt&Road and the consolidation of the supply of raw materials, especially in the energy and agricultural sectors – a globalization shaped by China, so to speak.

Exit ‘Workbench of the World’

The DCS is thus another response to growing economic and financial risks and thus for political stability. It represents the final departure from the previous export-oriented growth strategy. This allowed China to benefit as the ‘workbench of the world’, but it also ran into the ‘middle income trap’ like other emerging economies due to rising wages, the loss of export markets and further growth momentum.

The new strategy also supports the industrial modernization strategy ‘Made in China 2025’, in which sectors such as artificial intelligence, aviation and aerospace, ‘green’ technologies and medical technology are to be developed as a priority, and the so-called Digital Silk Road, which improves the logistical infrastructure for foreign trade.

Shaping foreign trade more strongly in this way according to one’s own interests thus represents its own variant of economic nationalism – albeit not as protectionist as U.S. economic policy, but rather expansive. It involves a more selective expansion of foreign investment and fewer imports, especially from industrialized countries. The ultimate goals remain economic growth, albeit ‘normalized,’ and increased profits in order to secure the promised ‘Common prosperity’ and thus domestic political legitimacy and stability.

Contradictions

A spectacular step to stimulate domestic demand is the call on domestic corporations to increase their charitable activities. However, such redistribution of profits is only a short-term measure to increase purchasing power and reduce the high level of inequality, which certainly carries the potential for social conflict.

More fundamental measures to redistribute income and wealth from the private sector, such as higher wages, the expansion of the social security system and the inclusion of population groups such as the rural population or migrant workers, who have so far been largely excluded from economic prosperity, are much more difficult to achieve. Moreover, these steps must not be allowed to jeopardize the dynamism of the Chinese economy.

In terms of foreign economic policy, a number of Belt&Road countries are locked in as suppliers of raw materials with this ‘development model’. This applies not only to fossil fuels such as crude oil and natural gas, but also and above all to strategic raw materials for industrial modernization, where China is often dependent on imports. Chinese corporations seem to be reacting to this situation by going on a buying spree of energy and mining companies. The prospects of becoming less dependent on imports of agricultural products, which are of central importance for China’s food security, are even dimmer.

Perspectives

Optimists may well see new opportunities in the dual cycle strategy for at least some B&R countries: A boost to industrialization from further infrastructure development, relocation investments and improved market access to China for processed products and important raw materials, and thus a prospect of participating in China’s further prosperity.

Pessimistically, however, an almost imperial scenario is also emerging here: Securing the national economy, an increase in prosperity and the strengthened position vis-à-vis the competitor USA will be achieved by intensifying the exploitation of nature and people in other countries. This ‘new development model’ for China also becomes more and more dependent on domestic political stability in the Belt&Road countries and thus on interventions by Beijing, be it politically by bolstering compliant governments, be it through security forces against attacks on Chinese investments and citizens. The ‘dual cycle’ could thus become a maelstrom.

Translated with www.DeepL.com/Translator (free version)

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