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Decoding China’s “Dual Circulation” Strategy

Since May, when China's central leadership started referring to a "new development pattern," there has been much speculation about whether the country is embracing an entirely new economic model. In fact, the government is merely describing changes that have already happened.

BEIJING – In May, China’s central leadership proclaimed that it would “fully develop the advantages of [the country’s] super-large market and the potential for domestic demand to establish a new development pattern featuring domestic and international dual circulations that complement each other.” “Dual circulation” has been the subject of intense discussion within and outside China ever since.

Does the announcement signal a fundamental shift in China’s growth paradigm or development strategy? Why was this new concept introduced, and what policy changes will it entail?

To answer these questions, one should briefly revisit the process of China’s “reform and opening up” since it began in the late 1970s. Around the end of that decade, the key hurdle preventing China from taking off economically was a shortage of foreign-exchange reserves. Policymakers faced what seemed to be a Catch-22: without foreign reserves, China could not jump-start its exports, and without decent export growth, it could not earn and accumulate the minimum necessary amount of reserves.