In July, China's President Xi Jinping emphasised the “dual circulation” development model, where there will be a greater focus on the “super-large” domestic market, with less reliance on exports. This is nothing new as policymakers have reiterated the importance of a shift to a domestic-led “new normal” for many years. Some may perceive this evolved strategy as a way of closing the door to the outside world, however, this would hinder the country’s push to internationalise. So, faced with the current geopolitical climate (and US protectionism) coupled with a strained global supply chain, it appears China is taking steps to both firm up trade deals and foreign investment channels, and importantly: strengthen domestic technology, drive domestic competition, improve efficiency and fund infrastructure projects. The State Council meeting on July 29th made a call to “expedite a new structure with internal circulation at the core and mutual facilitation of domestic and external demand”.China has stepped into the second half of the year on the front foot, with stronger manufacturing and services readings, and stronger than expected exports, however domestic demand appears lacklustre: the retail sales reading disappointed, falling -1.1% versus expectations for a +0.1% rise in July. Nonetheless, output is expected to continue to grow (albeit at a much slower pre-COVID pace) thus China is set to be the only major economy to witness economic expansion this year. However, although
China appears to have brought the pandemic under control, the same cannot be said for most of its trading partners. There are therefore the obvious drags as China’s economy is still reliant on the likes of the US and Germany, who’s economic contractions will have a negative impact on China’s growth, it is therefore no surprise that policymakers are looking to push long-term development domestically. Although details surrounding the “dual circulation” are currently vague, we expect to hear more in October, when the Communist Party’s Central Committee is set to discuss the 14th five-year plan (FYP).