COMMENT | A new 'China shock'

COMMENT | Some months ago, the Chinese authorities approached some of the biggest foreign companies in the country and asked them to tap a representative to participate in a small closed-door gathering on China’s new economic strategy. 

The meeting was to be with a senior official at an undisclosed time and location, and, according to two people with direct knowledge of the matter who insisted on anonymity to discuss it, companies were asked to send only ethnic Chinese representatives.

In both content and form, the episode captured China’s eagerness to make its economy more recognisably Chinese, developing its own technologies and energy sources while relying on domestic consumption rather than on foreign demand.

Chinese President Xi Jinping’s new strategy centres on the concept of “dual circulation.” Behind the technical-sounding phrase lies an idea that could change the global economic order. Instead of operating as a single economy that is linked to the world through trade and investment, China is fashioning itself into a bifurcated economy.

One realm (“external circulation”) will remain in contact with the rest of the world, but it will gradually be overshadowed by another one (“internal circulation”) that will cultivate domestic demand, capital and ideas.

The purpose of dual circulation is to make China more self-reliant. After previously basing China’s development on export-led growth, policymakers are trying to diversify the country’s supply chains so that it can access technology and know-how without being bullied by the United States. In doing so, China will also seek to make other countries more dependent on it, thereby converting its external economic links into global political power.

The shift to a dual-circulation strategy raises the spectre of a new “China shock” that could dwarf the impact of the first one, which struck Western economies after China’s accession to the World Trade Organisation in 2001.

Although China’s inclusion in the WTO generated a huge amount of wealth and lifted millions of Chinese out of poverty, it also created losers in places ...