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‘Domestication’ of the Chinese economy

At a time when the world economy is reeling under the Covid-19 crisis, China has embarked on a new development paradigm to re-establish its position as a global economic power. This is evident in its 14th Five-Year Plan (2021-25) announced by the government in July 2020 which is enshrined with novel concept called ‘dual circulation.’

This development paradigm is centered on domestic circulation with a “dual circulation” model in which domestic circulation and international circulation promote each other. China adopted since 1979 an ambitious export driven model by making full use of domestic and international markets and resources. As the new model is emphasising on domestic circulation, many key China watchers have started pondering whether China plans to transition from export driven growth model to a domestically consumption driven economy.

China has been a major player in global trade. So its shift from export orientation to domestic driven model, will hamper world trade, other nations as well as itself. Then why has China proposed to carry out domestic circulation?

China’s exports were hit hard during global financial crisis (2007-2012), and it did turn to domestic consumption to promote growth, but around 2013-14 it had again become export oriented.

‘Homeward’ bound

Given how the pandemic is playing havoc with the world economy, China is perhaps looking inwards again.

With the advent of Covid-19, the WTO in April 2020 had predicted world trade to shrink by 13 to 32 per cent and most likely in the current situation closer to 32 per cent. With the spread of Covid-19, many countries have slowed reopening, and some are reinstating partial lockdowns to protect susceptible populations.

The rising US-China trade friction in the last few years has hit Chinese exports hard forcing the country to turn to domestic demand and encourage ‘domestic circulation’.

This in turn takes care of the unemployment problem and ensures social cohesion. However, a more analytical perspective suggests that China experienced its peak of exports during 2006 and accounted for 35.4 per cent of GDP which in April 2020 came down to 17.7 per cent ( This means in 2006 a little more than a third of its products were sold to foreign countries.


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