Ding Yifan: how should Chinas strategy of opening up to the outside world be positioned based on internal circulation

 Ding Yifan: how should Chinas strategy of opening up to the outside world be positioned based on internal circulation

Author Ding Yifan (researcher, World Development Institute, development research center of the State Council, columnist of Netease Research Bureau)

Chinas economy will enter the 14th five-year plan, which involves the beginning of the second century. How to ensure a good start in the second century is the key to lay the foundation for future development.

Recently, the central government has put forward the strategy of giving priority to internal circulation and promoting the future development of domestic and international dual circulation. If compared with the policy of further opening to the outside world just released by the Chinese government a while ago, which one is more important?

What changes have taken place in the world economy?

In fact, the development of Chinas economy in recent years has proved that since the last international financial crisis, Chinas economic growth is mainly supported by internal circulation. For example, in 2007 and 2008, Chinas current account surplus accounted for more than 10% of GDP, which shows that trade exports contribute greatly to economic growth. However, with the expansion of the impact of the financial crisis, our traditional export markets, the US and Europe, have fallen into recession, and Chinas exports to them have also been declining. China can only offset the impact of shrinking external markets by expanding domestic demand and increasing infrastructure investment. It should be said that these measures have maintained Chinas economic growth and improved the quality of economic growth. But at the same time, Chinas export share of GDP is declining. By 2019, the ratio of the current account surplus to GDP has dropped to 1%.

At this time, no matter how much we miss the development model of the past, the mode of export-oriented growth can no longer continue. It is based on these realities that our country has issued the policy of double circulation of economic development, and we should vigorously strengthen the role of internal circulation.

Internal circulation mainly involves two aspects

1u3001 China itself is the largest market in the world. How to mobilize the domestic demand of this market is the biggest problem to form a virtuous internal circulation. Of the 1.4 billion people in China, more than 400 million have entered the middle class and have strong consumption power. If we can double this group into 800 million middle class, the market demand will at least double, and Chinas economic growth will have a new impetus. In this case, to a large extent, it is necessary to increase the income of those people who were not strong in the past, increase their purchasing power and increase their ability, so as to ensure the continuous growth of domestic demand in China. These people are mainly concentrated in rural areas. If they want to increase their purchasing power, they must be empowered. The best way is to make the land in their hands become assets, flow and become the capital for their investment or entrepreneurship. Therefore, from the perspective of distribution, the future society will be a more balanced society.

2u3001 In addition to cultivating the consumption side, the internal circulation development should also pay attention to the supply side. The problem on the supply side is that we have encountered some technical weaknesses that may affect the speed and quality of our future economic development. Therefore, the great meaning of an internal circulation now is to make up for the weaknesses. We should let those parts of the global industrial chain that we relied on others in the past, so that we can control this trend independently.

For example, our communications companies have the lead in developing 5g technology, leading the world in technology. However, many of the chips used in 5g technology need to be imported from the United States. But when the United States began to take China as the target of sanctions, and wanted to use technology blockade to restrict the development of Chinese enterprises, these communication companies were in trouble.

The example of the communications industry allows us to draw inferences from one instance and wonder whether other industries are facing the same threat. For example, our large aircraft, many of the accessories are from abroad, especially the aircraft engine, the heart of the big aircraft, is completely controlled by people. Does the automobile industry have similar problems? What about the robot industry? What about industrial software? We should carefully examine the degree of dependence of our various industries on foreign countries, make up for the weaknesses, strengthen the layout of our industrial chain, and prevent the risk of industrial chain interruption.

Finally, although strengthening the capacity of internal circulation is an important part of dual cycle development, external circulation is equally important to Chinas development. Whats important is that there will also be a big change in the future external circulation from the one dominated by others that we participated in before.

In the past, we were just involved in other peoples cycles, embedded in other peoples production chains. Now, when other people threaten to drive us out of the production chain, or replace China with other countries (whether it can or not), what we have to do is prepare for the rainy day: on the one hand, we cant replace China; on the other hand, we can build our own industry chain overseas to maintain Chinas attraction.

China has adopted a more open attitude and the attraction of the Chinese market has doubled. In the future, the enterprises of developed countries in China will definitely have more profits in the internal circulation based growth mode. In addition, China has a full range of industrial production capacity. If they want to get rid of Chinas manufacturing and decouple from China, their costs will be doubled and their efficiency will be greatly reduced. When China produces the same products, those enterprises that leave China are bound to face fierce competition from Chinese enterprises, and their survival will be threatened at that time. If China wants to build itself into an indispensable link in the global industrial chain, leaving China means suicide.

Produced by Netease Research Bureau (wechat official number: wyyjj163)

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