Lianhe Zaobao:

Is China's new development paradigm of "dual circulation" a response to international pressure? During the 14th Five-Year Plan period and in the years leading up to 2035, will China shift its focus to development of its "domestic circulation," thereby diminishing efforts to open-up to the outside world? Thanks.

Xu Lin:

Mr. Han Wenxiu will answer your questions.

Han Wenxiu:

Fostering a new development paradigm is a strategic decision taken by General Secretary Xi Jinping and the CPC Central Committee in order to actively tackle the changing international and domestic situations, upgrade China's economic development in a timely manner, and foster new advantages in international economic cooperation and competition. It has played a key role in the creation of the proposals.

As we have seen, economic globalization is currently encountering headwinds, unilateralism and protectionism are rising, the COVID-19 pandemic has brought about extensive and profound impacts, and traditional international economic circulation has been substantially weakened, or even hampered. Against this backdrop, strengthening domestic circulation allows us to enhance the resilience of our economic development, and at the same time increase international circulation, thus allowing the two circulations to boost one another. One commonality between major economies is that domestic circulation can suffice. Like other major economies, China, as the world's second largest economy, has made domestic supply and demand the mainstay of its economic circulation. Since the 2008 international financial crisis, China has achieved remarkable progress in rebalancing its economy. For instance, China's current account surplus plunged from around 10% of GDP in 2007 to approximately 1% in 2019. China's degree of foreign trade dependence — the ratio of foreign trade volume to the country's GDP — has dropped from over 60% to just over 30%. Therefore, China's economic growth is increasingly dependent on domestic consumption and investment.

You may have noticed that China has been highlighting the basic role of consumption and the key role of investment since the 18th CPC National Congress held in 2012. In recent years, the contribution of domestic demand to economic growth has basically remained over 90%, with the ratio exceeding 100% in some years. Therefore, the driving force of the domestic circulation has been remarkably strengthened. Therefore, the adoption of the new development paradigm — whereby domestic and foreign markets can boost each other, with the domestic market as the mainstay — signifies that the Party has precisely grasped and put into practice the laws governing economic development. This is a proactive rather than a reactive move; it is a long-term strategy, not a stopgap measure.

It is necessary to point out that the new paradigm stresses dual circulation rather than domestic circulation on its own. By saying domestic circulation, we mean "wide circulation" based on a unified domestic market, rather than self-centered "small circulations" based on local markets. It does not mean we will foster separate circulations in each and every province, city or county.

To foster a new development paradigm, we should first adhere to expanding domestic demand as the strategic foundation, facilitate national economic circulation, and remove various barriers to production, distribution, logistics and consumption. To remove these barriers, we should deepen supply-side structural reform and achieve major breakthroughs in key areas and linkages. We should increase research into core technologies and ensure the safety and stability of industrial and supply chains. We should optimize the structure of income distribution to expand the size of the middle-income group. We should develop a modern logistics system, improve the consumption environment to promote consumption upgrading, and take full advantage of the country's huge market. In this way, not only can we boost the domestic economy, we can also create more market opportunities for the rest of the world.

We should ensure deeper involvement in the international circulation, which is an integral part of China's efforts to establish a new development paradigm. We should promote higher levels of opening-up and expand market entry for foreign-invested enterprises to better use resources from both domestic and international markets. Markets are a scarce global resource. We should build a market-oriented and international business environment based on the rule of law. Relying on the strong domestic market, we should turn the country into a magnet for high-quality global resources, and make China a fertile land for foreign investment and enterprises, thus allowing domestic and international markets to boost each other and promoting mutual benefits and common prosperity with other countries. Therefore, fostering a new development paradigm by no means signifies the weakening of the country's efforts to open up. On the contrary, China will see a steady rise in its foreign trade volume, the utilization of foreign capital, as well as its outbound investment, and China's international standing will also continue to rise, which is an important hallmark of major economies. Thank you.