China's dual circulation policy narrows foreign business opportunities
Published 30 October 2020 | 6 minute read
The details of the Fifth Plenum in Beijing are important for diplomats, academics and China hands. But foreign companies should focus on the outlines of the 14th five-year plan that are emerging, in particular the impact of China's "dual circulation" policy.
As some 370 members of the Chinese Communist Party leadership gathered in Beijing on Monday to open the Fifth Plenum and review the country’s next five-year plan, state media heralded the use of such plans as “The Unique Charm” and “Secret Code” of Chinese governance.
Adopted from the Soviets in 1953, these plans are unique in today’s world, but they certainly do not contain any secret code. Indeed, the upcoming 14th five-year plan to guide China’s development from 2021 to 2025 will clearly outline the country’s strategic direction and key policy objectives. Foreign companies doing business in China would be foolish not to pay close attention. I will leave it to others to dig into the details of GDP growth, carbon emissions and other numerical targets that emerged from this week’s meeting. Business is better served by stepping back and considering what the outlines of the five-year plan, the surrounding political rhetoric and China’s view of its embattled global position tell us about what space President Xi Jinping plans to leave open for foreign business in China.
Due to what Chinese state media describes as a “complex international environment,” President Xi in May unveiled “dual circulation” as a “new development model” to allow China to grow and prosper despite facing an environment of “protracted conflict” with the US and long term hostility with many other developed, capitalist democracies.
A week prior to the plenum, Xi appeared to frame the motivation for his new plans with a fiery nationalistic speech at a ceremony to mark the 70th anniversary of Chinese armies joining the Korean War, known in China as “The War to Resist US Aggression and Aid Korea.”
"In today's world, any unilateralism, protectionism, and ideology of extreme self-interest are totally unworkable, and any blackmailing, blockades and extreme pressure are totally unworkable," he said. "Any actions that focus only on oneself and any efforts to engage in hegemony and bullying will simply not work ― not only will it not work, but it will be a dead end."
Boosting domestic consumption
The focus of the 14th five-year plan will be “internal circulation,” Party-speak for growth built on boosting domestic consumption, stimulating domestic innovation, developing home-grown technology, and pushing toward self-sufficiency while reducing – and eventually eliminating – dependence on export earnings and imported technologies. This will be complimented by “international circulation,” a more disciplined pursuit of foreign business that serves the goals of China’s refined development model.
China’s Foreign Ministry this week sought to alleviate concerns that this policy would close the door to foreign businesses. "China will stand firmly on the right side of history and continue to deepen reform, expand opening up, strengthen cooperation in all fields, and work with other countries to win the final victory over the pandemic and promote the recovery of the world economy," spokesperson Wang Wenbin said on Wednesday.
The 14th five-year plan will be officially approved next March by the National People’s Congress. Ministries and localities will follow up with their own sub-plans. It would behoove foreign businesses to sift through the national and relevant local plans to determine where they can ride along and where they may be poised to get run over.
“Dual circulation” as import substitution?
In general, foreign companies that possess advanced technology, industrial processes, financial and other services that China needs – and from which China can glean knowledge to bolster its own companies – will continue to find opportunities in China. Retailers and consumer goods companies which provide quality goods at a low cost to help drive consumption should find room to maneuver. Companies that can modernize and improve the efficiency of China’s tangled, fragmented logistics systems through new technologies should also find a significant market.
At the same time, foreign business should remember that “dual circulation” is Beijing’s doubling down on its import substitution aspirations, reaching back to “Indigenous Innovation” in 2006 and “Made in China 2025” in 2015. As you peruse this upcoming 14th five-year plan and its local plans, remain focused on protecting the long-term future of your global business.
Also keep in mind that Chinese strategic plans for dealing with the outside world go further back than the Soviet era. It is helpful to remember this Qing dynasty slogan that was often quoted by Mao: Gu Wei Jin Yong, Wai Wei Zhong Yong. “Make the past serve the present, make foreign things serve China.”
About the author and APCO Worldwide
James McGregor is the Chairman for Greater China at APCO worldwide. APCO Worldwide is an independent advisory and advocacy communications consultancy helping leading public and private sector organizations navigate the challenges of today, act with agility, anticipate social risk, and build organizational reputations, relationships and solutions to succeed. In China, APCO provides business advisory and public affairs offerings ranging from market entry strategy and government relations to risk assessment.