China’s dual circulation economy

CHINA FINANCIAL - Report 21 Aug 2020 by Michael Pettis

Special points to highlight in this issue:

* It seems that by now a market consensus has emerged – in China and abroad – that China’s economic recovery has been mainly a supply-side recovery, with the very weak demand side still struggling.

* In response to this, Beijing has unveiled Xi Jinping’s new flagship economic program, the “dual circulation” development model. According to this model, China will use the strengths of its export sector (“international” circulation) to help shift the economy towards domestic demand (“internal circulation”).

* While attempts to implement the dual circulation model will dominate economic policymaking for the next few years – which is why it is very important to understand what Beijing means by this model – the political forces that prevented “rebalancing” will be the same forces that make dual circulation difficult to implement.

* What’s more, there is an internal contradiction between international circulation and internal circulation: the former is based on low wages relative to productivity, whereas the latter requires much higher wages.

Now read on...

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