Innovative & inclusive development is necessary to make the most of the New Dual Circulation Paradigm
The further opening-up of the financial sector, utilizing the advantages created by international circulation, can boost the modernization of China’s industrial and supply chains.
From the domestic perspective, homegrown innovation should be enhanced, especially innovation that can clear technological bottlenecks such as semiconductors. Technological breakthroughs will help secure critical links in China’s industrial and supply chains.
In this regard, China has made remarkable achievements. For instance, when it comes to 5G technology, China has taken the lead on the global stage, thanks to the research and development endeavors of Huawei and other Chinese companies.
The deepening of opening-up will attract more investment from high-end, multinational corporations, helping improve domestic industrial and supply chains. In 2020, investments in fields dominated by advanced technologies were on the rise in China. Government policies have accelerated economic growth, which has attracted foreign investors.
As a result, multinational corporations have allocated resources to the Chinese market and their strategy could encourage other foreign companies to invest.
Also, there has been a significant change in the foreign investment pattern. Today, multinational corporations take China as their target market and focus on long-term development. Therefore they are ensuring the stability of China’s industrial and supply chains. In this way their investment in the supplementary layout will increase.
Through competition and cooperation in the international arena, companies around the world can share innovation and talent resources, which is a kind of investment that serves the domestic circulation progress.
At the moment, domestic enterprises’ capabilities in the above areas still need improvement to boost their competitiveness. Entering overseas markets can help cultivate industrial bases and promote the modernization of the industrial chain, which is inseparable from high-level opening-up.
The following are five priorities for enhancing opening-up to promote the dual circulation development paradigm.
The Chinese government should step up domestic market reforms, to properly deal with the relationship between enterprises and the government, between different regions, between the central and local governments, and ensure competitive neutrality in competition policy. In this way, resources will be allocated according to the market’s supply-demand relations, unleashing the market’s potential in promoting the dual circulation development paradigm.
Moreover, the government should also accelerate the pace of internal opening-up, as the domestic circulation environment at present is not ideal. For instance, private enterprises face various restrictions in certain areas, hindering their functioning as market entities. From the perspective of the outside world, high quality opening-up is an essential part of building unimpeded international circulation, as well as the dual circulation development paradigm.
The next step for China is to raise its level of openness to international cooperation, by signing high-level free trade agreements with economic partners or taking an active part in the structural reform of global governance platforms such as the World Trade Organization. During the process, countries can jointly improve the global system and the rules of globalization.
To maintain the industrial chain’s stability, countries should work together to build a regional production network and encourage domestic firms to consolidate cooperation with multinational corporations.
International cooperation frameworks such as the Belt & Road Initiative and Association of Southeast Asian Nations can provide platforms for Chinese enterprises to benefit from the respective advantages of participating countries.
Such a network would also be conducive to ensuring the security and stability of cross-border industrial division of labor and the industrial and supply chains. The establishment of such a network that will enable participants to adjust industrial and supply chains more actively is the next priority for the construction of the dual circulation development paradigm.
During the process, policymaking should focus on the critical issues. It needs to emphasize supply-side structural reform and demand-side management, provide necessary support to encourage enterprises to pursue innovation and adjust the industrial and supply chains.
Building a sound mechanism and environment for market competition should also be included in the process. In addition to removing obstacles to the further development of enterprises, those methods could also stimulate the whole market’s efficiency through competition. There is still tremendous potential to unleash.
It is critical to enhance the domestic industrial supply chain’s security and stability, and overcome problems restricting China’s high-tech economic growth. Domestic companies should focus on inclusive innovation and international cooperation while learning from their partners to achieve more innovative breakthroughs.
For example, Huawei has formed a profitable ecosystem for collaboration with simplified policies, focusing on mutual benefits. It proves that innovative and inclusive development is a significant channel for domestic companies to reach the world’s top level.