China: the limitations of “dual circulation”

Illustration: Henry Wong for South China Morning Post

This column has previously been published in L’Opinion on March 15th 2021

It is surprising that the long-awaited publication of China’s 14th five-year plan was not heralded by any great fanfare. It was expected to be the consecration of China as the country that would come out on top after the Covid crisis, but the announcements were somewhat disappointing with regard to observers’ three main expectations. In fact, they confirm that the prospect of a “Prosperous China” has been put forward to post-2035, with the next 15 years as an intermediary and more painful stage in the building of a “Modern China”.

Firstly, in terms of growth, the announcement that 2021 will see a GDP progression of “at least 6%” is below the 8–9% increase that was generally expected. From a positive point of view, it has to be seen as a result of the influence of the PBOC — the highly conscientious central bank of China — which is determined to put an end to runaway indebtedness and to nurture recovery mainly through productive investment. This is in compete contrast to Western monetary laxity, particularly on the part of the USA.

However, it reveals the limitations of the desire to rebalance Chinese growth through domestic consumption, for it is obvious that, in China, it is by the growth of GDP that consumption will recover and not the opposite, as is the case in the West. This is all the more true in the short term, given the delay incurred in vaccinating the population.

Secondly, the declared objective of technological sovereignty does indeed foresee a 7% annual increase in expenditure on R&D. However, details are sorely lacking with regard to the two Achilles heels of Chinese tech. Firstly, semi-conductors: overall, a cumulative $250 billion have been historically mismanaged, as shown again recently by the setbacks of the Wuhan Hongxin Semiconductor Manufacturing’s $18 billion project, which still leaves China dependent on the rest of the world. Secondly, the software industry — notably operating systems: China still only accounts for only 3% of global expenditure, giving it no credibility on a global level.

The Chinese government would doubtless do well to note the nefarious consequences of France’s “At the same time” policy.

But it is at the environmental level that the highest crystallization of disappointment is evident: not only because of the absence of the concrete measures that were expected, but above all because of the reminder of internal regional curbs on the revolutionary energy mix promoted by the central government. This was illustrated by the proposal from the National Energy Agency to reconsider the payment of the past $60 billion worth of unpaid grants to renewable energy companies.

On a more basic level, these contradictions openly reflect the conflict that is currently raging in Beijing between two camps. On the one hand, there are the partisans of closing China off, now that it has gained strength from its control of the Covid crisis, its domestic consumption and its desire to deal speedily with Taiwan. On the opposite side, there are those who favor prolonging China’s opening up to the outside world, and who make particular reference to China’s weaknesses in the different sectors identified in the recent Comprehensive Agreement on Investments with Europe: financial services, healthcare, cloud service, environmental intelligence…

The Chinese government would doubtless do well to note the nefarious consequences of France’s “At the same time” policy, in order to avoid the danger of “dual circulation” leading just to closing off.

Business angel / demon. Based in Hong Kong since 2011. Columnist, author of “Paris-PekinExpress”, “Beijing Express” and “Génération Tonique”.