The overarching economic goal of China’s leadership is to transform its old growth model to a more sustainable path, addressing the long-term challenges of an aging population, declining productivity and less and less room for policy stimulus. Ongoing policies such as rebalancing, deleveraging, and “Made in China 2025,” which are designed to achieve this transition, are likely to remain in place with some implementation details to be adjusted along the way.
“Dual circulation” economic strategy – adjusting to the changing geopolitical environment
China has recently unveiled a “dual circulation” economic strategy that is likely to be included in China’s upcoming 14th five-year plan (2021-2025) to guide the country’s economic policies. The idea is for China to rely predominantly on its domestic economic system (“internal circulation”), which will be supported by international markets (“external circulation”). While some may view China’s long-term attempt to reduce its dependence on overseas markets and technology as reverting to a closed-door policy, we believe that it reflects a strategic adjustment in response to a more contentious geopolitical environment.
As U.S.-China tensions escalate and protectionism rises across the globe, foreign demand is becoming less reliable, so China is focusing on stimulating domestic demand to absorb its huge production
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