By Patrick McAlary, Research Assistant

On 06 September 2023, the Centre for Geopolitics hosted Andrew Cainey to discuss his co-authored book, Xiconomics: What China’s Dual Circulation Strategy Means for Global Business. The discussion focused on China’s domestic economy, but, as Andrew highlighted, this has big implications for China’s role in the world and for the multinational corporations that seek to do business with China.

A tale of two Chinas

Andrew opened his talk by referencing the polarities of China’s domestic economy. On the one hand there are massive property development companies like Country Garden and China Evergrande that are feeling the effects of China’s real estate crisis and on the other hand there is BYD, which is outperforming Tesla in electric vehicles and CATL, the world’s largest battery company. While the real estate sector is sucking precious GDP points from China’s economy, this masks strong economic growth of around 20% in the science and technology sector. China’s economy evidently faces real challenges, but this has always been the case. In 2007, Wen Jiabao, Premier of the PRC, diagnosed Chinese growth as “unstable, unbalanced, uncoordinated, and unsustainable”, but since that time the economy is three times larger, a high-speed rail network has been developed, and China has become a leading exporter of passenger vehicles. In other words, it would be unwise to write China off at this stage.

Putting the Xi in ‘Xiconomics’

The term ‘Xiconomics’ was chosen to acknowledge the crucial role that Xi Jinping and his centralised leadership play in the economy’s development. However, it is also an English word that has institutional buy-in, being accepted by the CCP and the state media as encapsulating “Xi Jinping economic thought on socialism with Chinese characteristics for a new era”. The term remains vague and Andrew ascribed a series characteristics to it. These include the personal role of Xi Jinping, the dual circulation strategy, a focus on technology and urbanisation, and the role of a comprehensive security concept. Citing a shift in terminology in Party Congress Reports, Andrew highlighted that references to ‘reform’ and ‘economy’ are down while ‘security and ‘science and technology’ are up, reflecting the primary concerns of ‘Xiconomics’.

The Dual Circulation Strategy

The ideological and security driven approach embedded within ‘Xiconomics’ reinforces the value of the dual circulation framework. This recognises an internal and external circulation, distinguishing between the flow of economic activity within China and the rest of the world. The dual circulation approach moves away from the ideal of the 1980s, where China sought to join an integrated and seamless global economy. The focus has shifted to mutual reinforcement, or making the global economy work for China. Andrew made the point that the dual circulation strategy is less of a hard break from the past so much as a response to new challenges. China’s growth cannot be sustained by exporting to the rest of the world, but its domestic economy can support greater activity. This point is reinforced by geopolitical factors that undermine external circulation, such as the rise of protectionism.

Strategic decision making

Andrew outlined three levels to dual circulation:

  1. a framework for the economic landscape;
  2. a set of strategic choices;
  3. a brand (packaging the shift in terminology such as ‘common prosperity’).

Andrew made the point that the fundamental framework of a division between domestic and international is hardly unique to China, citing policies pursued by the UK in relation to Brexit. The key difference comes from the strategic choices, that is deciding the importance of the domestic versus international circulation and how they should interconnect. Since 2020, Xi Jinping has emphasised that internal circulation is the key part of the equation, putting greater onus on a consumption-led growth model, technological self-reliance, and upgrading infrastructure. However, reflecting the point that the strategy reflects the times, since 2020 the internal aspect has become less central. While exports from China have become less important for economic growth since 2010, the domestic weakness spurred by the COVID-19 pandemic saw exports contribute more to growth—in other words we are seeing adaption.

Moving forward, it is possible, albeit unlikely, that these circulations come back together again, similar to the previous state of affairs. However, it is worth countenancing an extreme scenario, where we see a complete decoupling. Ultimately, the key determiner is a series of factors related to the domestic economy:

  1. Context: Demographics; education levels; protectionism sanctions
  2. Objectives: a traditional concern for economic growth is being complicated by a focus on income redistribution, security, self-reliance, and ideology
  3. Execution effectiveness: how the policy-making process is being utilised and adjusted at a local level

These come together in messy ways that could have different impacts. For instance, a redistribution of wealth could stimulate consumption and embed the stated focus on internal circulation, but suppression of private enterprise could in turn have a damaging impact. Andrew identified execution as a weak spot, where there is less willingness to speak truth to central power. It is worth stressing that a prioritisation of domestic circulation does not mean that China is cutting itself off from the world. Xiconomics envisages Chinese companies having a more prominent role in the world and a larger hand in shaping global governance, while imports, especially from the Global South, remain crucial.

‘Animal spirit with Chinese characteristics’

Andrew drew his talk to a close by returning to China’s contemporary economy. He emphasised that China needs to strike dynamic balance between supply (or the productive potential of the economy) and demand. China needs to find its own path which has higher productivity where investment feeds into productive returns that correlate to what people want. Andrew finished on the role of leadership and clarity, highlighting Xi Jinping’s use of the phrase ‘common prosperity’. The intention behind this political slogan has not been defined, but this phrase has a strong history rooted in collective ownership. When used without clarity, and without assurance that the more extreme scenarios will not come to pass, this can shake confidence in China’s economy from outside and from within. This is in a context where confidence and has been hit by COVID and the politicisation of the economy. The Chinese government is attempting to re-establish credibility about the role of the private sector. Andrew summed this up with the Keynesian idea of ‘animal spirit’ but ‘with Chinese characteristics’. This encapsulates a desire for a return to private sector investment, but within the confines and guidelines of party ideology.


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