External Circulation - Assessing Part 2 of China's Dual Circulation Strategy

The “Internal Circulation” component of China’s new “Dual Circulation” strategy – which embraces stepped up indigenous innovation and other requisite supply chain and IP localizations – is not a new concept. It reflects the continuation of long-running import substitution trends. However, the “External Circulation” component of the strategy is new in that it purports to re-define what China will do with its outbound engagement with the rest of the world and what the MNC role should be in China.

External Circulation overtly assumes prolonged hostility in the external environment and strongly embraces a reduction in dependency on and attachment to the global business system. The idea is that China will attach globally where it can and detach where it must, but that external reliance should be substantively reduced as a general principle. Another general principle is that global attachment should, as much as possible, work on Chinese terms – e.g., cross border settlement via CNH or DCEP, trade engagement via RCEP, FDI via BRI, etc.

How realistic is this policy? Does China have the capability and leverage to make it happen?

This China CEO Council meeting examined the key gating factors that will determine the future of Dual Circulation and define the operating environment for MNCs in China over the medium- to long-term.  China Center members can access the full session deck and insights summary here.