Advertisement
China economy
OpinionComment
Yukon Huang
Yukon Huang

The View | ‘Two sessions’ 2021: how China can fine-tune its dual circulation strategy to boost economic growth

  • Beijing has yet to address the policy distortions that have led to a decade-long growth slowdown, amplified now by US decoupling measures
  • It needs to find a balance in allocating public investment and between accessing technological expertise from abroad and developing capacities at home

Reading Time:4 minutes
Why you can trust SCMP
7
Work resumes at Harbin Electric Machinery Company, in northeast China’s Heilongjiang province, on February 22, after the Chinese New Year. Photo: Xinhua
Yukon Huang

China’s National People’s Congress meetings starting this week will formally endorse the 14th five-year plan. Progress during this period is likely to determine whether China will realise its longer-term ambitions for 2035 of becoming a prosperous nation and major innovative power.

Right now, China appears well on its way to achieving these goals because it has handled the pandemic much better than other major economies. Beijing’s draconian measures have facilitated a sharp industrial recovery and surge in exports.

China’s 2020 trade surplus increased by a quarter over the previous year and foreign reserves have hit a near-five-year high. For the whole of 2020, GDP grew 2.3 per cent, much better than the 4 per cent to 10 per cent declines for the US and euro-zone economies. 

The reality, however, is much more challenging. Beijing has not yet addressed the policy distortions that have led to a decade-long growth slowdown, amplified now by US decoupling measures. The leadership has put forward a dual circulation strategy that suggests greater reliance on domestic demand if the external environment continues to be hostile.
The dual circulation concept would be more operationally useful if the domestic focus was devoted to reversing the sharp decline in the productivity of investment and the external focus was on finding the right balance between accessing technologies from abroad and developing them at home. 

The link between investment and growth is captured in an indicator that economists refer to as the incremental capital-output ratio, which measures how many units of investment are needed to generate a unit of gross domestic product. Since 2005, that number has nearly doubled from 3.3 to over 6, a near halving in the productivity of investment. 

Advertisement