Page 8 - THE SOUTH CHINA BUSINESS JOURNAL
P. 8
PTH – the world’s second largest economy will focus
on building an unblocked “internal circulation”
China’s economic transformation has not been of domestic production, distribution, and
smooth and faces many problems. But, recent consumption instead of over dependence on the
dramatic changes in the global trade environment “external circulation” of the global market. The
– promoting economic nationalism over a free disclaimer, of course, being that China will not
market economy, for example – has made the simply forsake the export goose that once laid it
cause more urgent for Beijing. golden eggs.
The ongoing COVID-19 pandemic has additionally Boosting domestic demand
provoked global concerns on supply chain China has been conducting domestic reforms for
dependency, as different countries have been boosting private consumption for years, and this
forced to rethink their reliance on other countries has been reignited by the impact of recent external
(especially in strategic industries, such as medical ripples in the global economy.
supplies and access to pharmaceutical raw
ingredients), which will likely accelerate supply Key projects in this regard include faster reform
chain shifts out of China. of China’s land and residency (hukou) system,
Growing concerns in the West about the impact which is the ongoing urbanization program, to
of China’s integration into the global trade system turn millions of migrant workers into city dwellers.
are pushing countries, led by the US but also This will be overcoming a key obstacle to building
increasingly, the European Union, Australia, and a highly consumer-driven economy. It would also
Japan, to weigh their trade ties with China. A involve materially tackling a yawing inequality
general retreat from globalization among Western gap that has weighed on local spending capacity
democracies could mean more limited market by deepening the social safety net and via poverty
access to these countries for China. alleviation campaigns.
China is already a “hyper-sized” consumer market
To make matters worse, COVID-19 and the with 1.4 billion people. Although its private
shutdown measures to contain it, have plunged consumption is lagging behind production amid
the global economy into the worst recession since unemployment and economic uncertainties due to
World War II, adding to the woes of the global COVID-19, its 400-million-strong middle class is
economic slowdown and resulting in a shrinking steadily growing and offers extraordinary market
export market for China (with certain exceptions, potential.
such as in the case of medical supplies and
vaccines). Under this trend, we expect opportunities in areas
like health services and pension provision, as well
In addition, the widening rift with the US, has as in the upgrading and digitalization of supply
triggered a decoupling of sorts between the chain networks and the e-commerce industry.
worlds’ two biggest economies. The US crackdown
on Chinese technology companies like Huawei Focusing on strategic chock-point sectors
is pushing China towards self-reliance on key The other key element of DCS will be “reducing
technologies, such as semiconductor technology. risks tied to import dependency”. As a report
by The Economist Intelligence Unit analyzes,
Stephen Olson, a research fellow at the Hinrich “technology, energy, and food will be the sector
Foundation, observes that “a new era in trade” focus.”
is coming. “The trade landscape China will have
to navigate henceforth will be considerably less Tensions with the US have exposed the
benign than the one it traversed for the past two vulnerability of China’s supply chain – China
decades.” The DCS is also a signal that the Chinese relies on US$300 billion worth of imported
leadership is prepared for the “new reality”. semiconductors to meet over 85 percent of its
domestic market demand. Thus, of all sectors,
What will be China’s next steps under DCS? technology is poised to receive the most overt
The details of China’s dual circulation strategy support for achieving self-sufficiency, with
have not yet been unveiled. What is certain, semiconductors or integrated circuits (ICs) getting
however, is its desired outcomes. the most attention. In fact, this August, China
announced corporate income tax (CIT) breaks for
That is to say that in order to achieve a more IC and software companies.
sustainable long-term economic growth of China
and hedge against the impact of external shocks
5 AMCHAM SOUTH CHINA
on building an unblocked “internal circulation”
China’s economic transformation has not been of domestic production, distribution, and
smooth and faces many problems. But, recent consumption instead of over dependence on the
dramatic changes in the global trade environment “external circulation” of the global market. The
– promoting economic nationalism over a free disclaimer, of course, being that China will not
market economy, for example – has made the simply forsake the export goose that once laid it
cause more urgent for Beijing. golden eggs.
The ongoing COVID-19 pandemic has additionally Boosting domestic demand
provoked global concerns on supply chain China has been conducting domestic reforms for
dependency, as different countries have been boosting private consumption for years, and this
forced to rethink their reliance on other countries has been reignited by the impact of recent external
(especially in strategic industries, such as medical ripples in the global economy.
supplies and access to pharmaceutical raw
ingredients), which will likely accelerate supply Key projects in this regard include faster reform
chain shifts out of China. of China’s land and residency (hukou) system,
Growing concerns in the West about the impact which is the ongoing urbanization program, to
of China’s integration into the global trade system turn millions of migrant workers into city dwellers.
are pushing countries, led by the US but also This will be overcoming a key obstacle to building
increasingly, the European Union, Australia, and a highly consumer-driven economy. It would also
Japan, to weigh their trade ties with China. A involve materially tackling a yawing inequality
general retreat from globalization among Western gap that has weighed on local spending capacity
democracies could mean more limited market by deepening the social safety net and via poverty
access to these countries for China. alleviation campaigns.
China is already a “hyper-sized” consumer market
To make matters worse, COVID-19 and the with 1.4 billion people. Although its private
shutdown measures to contain it, have plunged consumption is lagging behind production amid
the global economy into the worst recession since unemployment and economic uncertainties due to
World War II, adding to the woes of the global COVID-19, its 400-million-strong middle class is
economic slowdown and resulting in a shrinking steadily growing and offers extraordinary market
export market for China (with certain exceptions, potential.
such as in the case of medical supplies and
vaccines). Under this trend, we expect opportunities in areas
like health services and pension provision, as well
In addition, the widening rift with the US, has as in the upgrading and digitalization of supply
triggered a decoupling of sorts between the chain networks and the e-commerce industry.
worlds’ two biggest economies. The US crackdown
on Chinese technology companies like Huawei Focusing on strategic chock-point sectors
is pushing China towards self-reliance on key The other key element of DCS will be “reducing
technologies, such as semiconductor technology. risks tied to import dependency”. As a report
by The Economist Intelligence Unit analyzes,
Stephen Olson, a research fellow at the Hinrich “technology, energy, and food will be the sector
Foundation, observes that “a new era in trade” focus.”
is coming. “The trade landscape China will have
to navigate henceforth will be considerably less Tensions with the US have exposed the
benign than the one it traversed for the past two vulnerability of China’s supply chain – China
decades.” The DCS is also a signal that the Chinese relies on US$300 billion worth of imported
leadership is prepared for the “new reality”. semiconductors to meet over 85 percent of its
domestic market demand. Thus, of all sectors,
What will be China’s next steps under DCS? technology is poised to receive the most overt
The details of China’s dual circulation strategy support for achieving self-sufficiency, with
have not yet been unveiled. What is certain, semiconductors or integrated circuits (ICs) getting
however, is its desired outcomes. the most attention. In fact, this August, China
announced corporate income tax (CIT) breaks for
That is to say that in order to achieve a more IC and software companies.
sustainable long-term economic growth of China
and hedge against the impact of external shocks
5 AMCHAM SOUTH CHINA
