The Strategist

China sets to reorient economy from export to domestic consumption

08/14/2020 - 04:27

The Chinese authorities are preparing a number of important initiatives that should help them reorient the economy to domestic consumption from exports, amid the global recession and deteriorating relations with the United States.
The need to make appropriate decisions is growing as Chinese companies, including Huawei Technologies Co. and Bytedance Ltd., are increasingly facing restrictions in overseas markets, according to The Wall Street Journal.

Senior Chinese officials have regularly spoken about a "domestic circulation" strategy since May this year, which prioritizes domestic consumption, markets and local companies as the main engines of growth in the PRC's economy, newspaper sources said.

According to them, foreign investments and technologies, in accordance with the new strategy, are still desirable, but they will rather play a supporting role.

The details of the new concept are still scarce, despite the fact that the Chinese authorities have been announcing plans to reorient the PRC's economy to domestic consumption for a long time.

The goal of the new economic development model, which is being promoted by Chinese President Xi Jinping, is to significantly reduce China's dependence on foreign companies, technologies and markets. However, it will not be easy to achieve it, especially at a time when businesses are in no hurry to expand operations and consumers are cutting costs. 

The new strategy is expected to be fleshed out in October at a plenary meeting of the Central Committee of the Chinese Communist Party, where an economic plan for the period from 2021 to 2025 will be approved.

The authorities' decision to lock the PRC economy on domestic interests stems from the understanding that Beijing's relations with the main part of the developed world will remain difficult.

The trade war with China, waged by US President Donald Trump for the past two years, has forced the PRC to devote more resources to the development of its own research laboratories, universities and companies in order to rid the country of dependence on foreign technologies, including American semiconductor technologies. This trend is expected to intensify as part of the "internal circulation" strategy, which will also include measures to stimulate the country's citizens to increase purchases of goods now produced by the PRC for export, the sources say.

The coronavirus pandemic revealed the high dependence of many developed countries on Chinese supplies, in connection with which several companies thought about transferring operations from the PRC. A March survey by UBS Group of Japanese, South Korean and Taiwanese companies manufacturing in mainland China and supplying them outside China showed that 85% of respondents have already moved part of their production out of the country or are planning to do so.