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Can China maintain high growth rates under the “dual-circulation” decoupling?

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  • Popov, Vladimir

Abstract

In 2020, after decades of “great international circulation” – a strategy of pursuing economic growth and development through export-oriented production – China announced that it would adopt a “dual-circulation” strategy. As was argued, “this means that, while China will continue to engage with global markets and supply chains, it will rely on domestic markets rather than external demand to drive economic growth” (Yu, 2023). What happens to the Chinese growth rates under the dual circulation strategy? Is it inevitable that the dramatic slowdown of growth that occurred since 2007 will become permanent? This paper argues that the slowdown of the Chinese growth is due not only to the objective factors (slowdown of population increase, approach to the technological frontier), but also to policy choices made well before the “dual-circulation” strategy emerged. It is due first and foremost the cessation of foreign reserve accumulation after the “Great Recession” of 2008-09 that led to the appreciation of the yuan, decline in the growth of export, investment and GDP. It is also argued that there are not only temporary costs of decoupling associated with restructuring (reorientation from foreign to domestic markets), but also permanent costs caused by the decline in international specialization and division of labor. It means that high growth rates could be maintained only at a higher price, in particular only with an even higher share of investment in GDP. Such a strategy can be justified only by security consideration, not economic ones.

Suggested Citation

  • Popov, Vladimir, 2023. "Can China maintain high growth rates under the “dual-circulation” decoupling?," MPRA Paper 117953, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:117953
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    References listed on IDEAS

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    Cited by:

    1. Popov, Vladimir, 2024. "Balance of Payments, Exchange Rate, and Foreign Exchange Reserves in China since 1979," MPRA Paper 121627, University Library of Munich, Germany.
    2. Popov, Vladimir, 2024. "Китайская Модель: Ретроспектива И Перспектива [The Chinese model: Retrospective and perspective]," MPRA Paper 121802, University Library of Munich, Germany.
    3. Popov, Vladimir, 2024. "Сколько Прав Нужно Человеку: Взлет И Падение Либерализма [How many rights does a human need: The rise and fall of liberalism]," MPRA Paper 120479, University Library of Munich, Germany.

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    More about this item

    Keywords

    dual -circulation strategy; Chinese growth; export/GDP ratio; exchange rate undervaluation; foreign exchange reserves accumulation;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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