Dual circulation economic model

Dual circulation economic model

Subject: Economy

Section:  Economic Growth

Context: China is working towards becoming a more independent economy, by introducing a ‘dual circulation’ model.

Reason for shift from Export led Growth:

• China has unveiled a “dual circulation” strategy to cut its dependence on overseas markets and technology in its long-term development, a shift brought on by a deepening rift with the United States.
• Tension with the United States has exposed China’s vulnerability as it relies heavily on U.S. high-tech products, such as semiconductors.
• China’s economy is increasingly dependent on services and less on manufacturing, which tends to lower the share of trade to GDP. China’s share of trade in goods to GDP has come down from almost 50% in 2008 to a little over 30% now.
• On the demand side, China has been trying for more than a decade to rebalance demand, external versus internal and investment versus consumption. Although consumption as a share of GDP increased from 34% of GDP in 2010 to 39% last year, it is far below that of more advanced countries such as the United States (68%)

What is the dual circulation model?

• Chinese President Xi Jinping first raised the idea in May and later elaborated that China will rely mainly on “internal circulation” – the domestic cycle of production, distribution, and consumption – for its development, supported by innovation and upgrades in the economy. Xi also said “internal circulation” will be supported by “external circulation”.
• The concept of ‘Dual Circulation’ does not imply that China will become a closed economy again, but “Reform and Opening Up”

Focus area for China:

• China needs to boost household incomes and consumption.
• Urbanisation programme to turn millions of migrant workers into city dwellers to expand China’s middle class. About 60% of China’s population live in urban areas.
• Boost tech innovation and push Chinese firms up the global value chain
• Advocate greater market opening to attract more foreign investment in high-end manufacturing to strengthen its supply chain security and deter foreign countries’ from luring firms away from China.

India’s Atmanirbhar Bharat:

Atmanirbhar Bharath or Self-reliant India campaign is the vision of new India with the aim to make the country and its citizens self-reliant in all senses.