On June 2, 2022, the Institute for Foreign Affairs and Trade (IFAT) and the China-CEE Institute organised an online workshop entitled “The Impact of China’s Dual-Circulation Strategy on Europe.” Mr. Márton Ugrósdy, Director of IFAT, and Mr. Zhongping Feng, Vice President of China- CEE Institute and Director of the Institute of European Studies of the Chinese Academy of Sciences (CASS), opened the conference. Márton Ugrósdy stated that the perception of China in Europe is extremely complex and that there is an urgent need for similar events. Feng Zhongping pointed out that the conflict between Russia and Ukraine has significant implications for China-Europe relations. He believes that the war will drag on because neither side can agree on an end. The increase in the intensity and duration of the conflict will have an impact on globalisation. The anti-China sentiment is growing in the European Union, so relations should be based on pragmatism, while confrontation should be kept to a minimum. For these reasons, it is very important to maintain constant communication.
The first panel was moderated by Mr. Zuokui Liu, the Deputy Director of the Institute of European Studies, CASS. Ms. Alicia García Herrero, Chief Economist for Asia-Pacific at Natixis, Senior Fellow at the Brussels-based European think tank BRUEGEL, Non-Resident Senior Fellow at the East Asian Institute (EAI) of the National University of Singapore (NUS) and Adjunct Professor at the Hong Kong University of Science and Technology, emphasised that the Belt One Road Initiative (BRI) can be seen as a spatial implementation of the dual cycle. The first sphere of economic activity is within China, while the second sphere is in the region connected by the BRI. The goal is to create a secure environment for China in which its technological vulnerability to the outside world can be reduced. This ambition is a response to an increasingly hostile environment in which excessive dependencies must be reduced.
Mr. Xin Chen, the Deputy Director of the Institute for European Studies, CASS, emphasised in his presentation that the EU’s focus has shifted from economics to geopolitics, which is reflected in official documents. EU-China relations have become more complex and multidimensional than in previous periods. Beijing has responded to the changing foreign policy environment by promoting globalisation, pursuing open policies such as the implementation of the Regional Comprehensive Economic Partnership, and deepening relations with the EU. Digitalization and the green transition are areas where the two players can cooperate more effectively.
Mr. Viktor Eszterhai, the Senior Research Fellow at IFAT, said that in Europe the political aspect is becoming increasingly important in economic matters as well. Indeed, dual circulation can easily be equated with a connectivity strategy characterised by asymmetric dependencies to gain influence over other countries while reducing their critical grass resources through diversification. The EU’s response will therefore follow the logic of the connectivity strategy: It will try to map its critical dependence on China and take measures to reduce it. This could easily lead to a give-and-take situation where the economic costs could be critical.
Mr. Qiyuan Xu, the Senior Researcher at the Institute of World Economics and Politics, argued that the dual circulation has developed organically from China’s macroeconomic development and planning. Dual circulation can be understood as a reform that simultaneously affects the supply side, the demand side and income distribution. China’s internal processes have been accompanied by changes in the external environment. After the 2008 financial crisis, the Chinese government concluded that it needed to act more cautiously in external markets. The strategy of parallel circulation is a response to the fact that export markets are geographically too far away and domestic demand is not yet strong enough. The primary goal is therefore to develop domestic demand. The parallel circulation can therefore be seen as a defensive strategy, while China wants to remain open to integration into the global economy. As an example, he pointed out that as domestic demand has strengthened, foreign companies producing in China have begun to focus on domestic consumers instead of exporting as before. This illustrates how important purchasing power is to the parallel circulation strategy.
The second panel was moderated by Mr. Péter Goreczky, the Senior Analyst and the Manager of the Asia-Pacific Research Programme at IFAT. Mr. Changyuan Luo, Professor at Fudan University, presented his academic findings on the impact of China’s economic transformation on society. He explained that the decline in export growth has worsened the mental health of society while having a positive impact on entrepreneurship. It has also positively stimulated youth and internal integration, showing the positive side of what is generally perceived as a negative economic impact. Overall, China’s economic transformation has led to a stronger domestic market, which is beneficial for China’s economic partners, including the EU.
Ms. Françoise Nicolas, Senior Research Fellow and Director of the Centre for Asian Studies at the French Institute of International Relations, highlighted that the dual cycle is an evolution of the earlier ” Made in China 2025″ strategy. This is a response to the fact that the international environment has become very unpredictable, and China needs to reduce its dependence on other countries and strive for greater self-sufficiency. This means that a greater focus on the domestic market and domestic technology is paramount. This will require economic intervention to gain access to more advanced technologies, which in turn will lead to conflict with the EU, which is normally opposed to any intervention in the economy. He pointed out that there is a contradiction in the dual cycle, as Chinese competitiveness has so far been based on low wages, which does not lead to strong consumption. He suggested that the financial sector should be reformed to better distribute capital.
Mr. Wang Xiaosong, a Professor at Renmin University, presented his research findings, which conclude that participation in international value chains can significantly mitigate the negative effects of external uncertainties and is therefore beneficial for Chinese enterprises. Mr. Csaba István Moldicz, Research Director of the Eurasian Centre of the John von Neumann University of Budapest and Associate Research Fellow of IFAT, described the concept of parallel circulation as a buzzword on the one hand. However, its actual content can be understood as a form of cross-cycle planning that is at odds with the countercyclical economic thinking of Western economies. China is trying to coordinate cross-cyclical effects through various economic instruments in order to become less dependent on world trade. China is not unique in this respect, as all countries are sensitive to changes in the international environment. It is therefore understandable that Beijing wants to strengthen its cooperation with the rest of the world, but also to protect itself from challenges from the external environment.
For the full recording please visit the China-CEE Institute’s YouTube-channel!