Hot topics | Coronavirus pandemic

China Has Started Preparing An "Internal Circulation" Strategy For The Economy

China Has Started Preparing An "Internal Circulation" Strategy For The Economy

Chinese authorities are preparing several important initiatives that should help them refocus the economy on domestic consumption from exports, against the backdrop of a global recession and deteriorating relations with the United States.

The need for appropriate decisions is growing as Chinese companies, including Huawei Technologies Co. and Bytedance Ltd., increasingly face restrictions in foreign markets, the WSJ reports.

Senior Chinese officials have been talking regularly since May about the "internal circulation" strategy, which prioritizes domestic consumption, markets, and local companies as the main engines of China's economic growth, sources tell the newspaper.

According to them, foreign investment and technology, following the new strategy, is still desirable, but will rather play a supporting role.

Details of the new concept are still few, even though plans to reorient the Chinese economy to domestic consumption have been announced by the Chinese authorities for a long time.

The goal of the new model of economic development promoted by Chinese President XI Jinping is to significantly reduce China's dependence on foreign companies, technologies, and markets. But it will not be easy to achieve, especially at a time when business is in no hurry to expand operations, and consumers are cutting costs, experts say.

The new strategy is expected to be specified in October at the Plenum Of the Central Committee of the Communist Party of China, where the economic plan for the period from 2021 to 2025 will be approved.

The decision of the authorities to close the Chinese economy on domestic interests is due to the understanding that Beijing's relations with the primary part of the developed world will remain difficult.

The trade war with China, waged over the past two years by US President Donald Trump, has forced China to devote more resources to developing its research laboratories, universities, and companies, to rid the country from dependence on foreign technologies, including American semiconductor technologies. This trend is expected to increase as part of the "internal circulation" strategy, which will also include measures to encourage citizens to increase purchases of goods currently produced by China for export, sources say.

The coronavirus pandemic has revealed the high dependence of many developed countries on Chinese supplies, which is why companies are considering moving operations from China. A survey conducted in March by UBS Group of Japanese, South Korean, and Taiwanese companies that produce their products in mainland China and supply them outside of China showed that 85% of respondents have already moved some production out of the country or plan to do so.

The focus on domestic consumption shows that " the Chinese government is not too optimistic about the outlook for the external environment, which it will have to put up within the medium term," said Zhang Ming, chief economist at the Chinese Academy of Social Sciences.

The new policy of the Chinese authorities is likely to make foreign business (which already faces restrictions in China, as well as requirements for technology transfer) even more undesirable in the country, writes the WSJ.