Justin Yifu Lin, honorary dean of the National School of Development at Peking University and former chief economist of the World Bank. (File Photo)
Due to the COVID-19 pandemic, many economies in the world have been hit hard and the global market is severely stricken. Global trade will shrink an estimated 13 percent to 32 percent in 2020, worse than in the 2008 international financial crisis, the World Trade Organization predicted.
Since overseas demand is faltering, China needs to further unleash domestic demand potential and encourage domestic economic growth. This is the short-term cause for the "dual circulation" development policy promoted by China, said Justin Yifu Lin, honorary dean of the National School of Development at Peking University and former chief economist of the World Bank.
Lin said the long-term reason are more important. Some people used to see China's development as "export oriented,” which is not accurate.
In 2006, China's GDP accounted for 5.3 percent of the whole world's GDP, with a GDP per capita of around $2,000 and exports accounting for 35.4 percent of GDP. In 2019, China became the second largest economy in the world. China's GDP accounted for 16.4 percent of the world's, with a GDP per capita exceeding $10,000 and the proportion of exports dropping to 17.4 percent of GDP.
Lin thinks the reason is clear. As residents' income level rises and the domestic market grows continuously, more products will be used to satisfy domestic needs. Since the sectors of the economy are evolving, the service industry, which has difficulty doing business abroad, will take up an expanding proportion of GDP.
In the future, the GDP’s proportion of exports will decrease gradually. The Chinese economy's shift to domestic circulation is a natural process in the course of history and development, he said
To grow domestic consumption, China is facing opportunities as well as challenges, said Lin.
As a developing country, China has the late-development advantage. Other countries in the world have provided reference frames and development routes for us in the manufacturing and service industry, he said.
He believes global industrial and supply chains are endangered by noneconomic factors, and China is also suppressed in the high-tech industry. But this can be handled in the long term.
On the one hand, China has a strong capacity for innovation. On the other hand, the global market is a huge “cake." Despite some countries' protectionism and unilateralism, the general trend of economic globalization won't change, Lin said.
The charm of the Chinese market is still shining, and many countries and regions are still willing to cooperate with China. The "dual circulation" model proposed by China is definitely not to close its economy and isolate itself. China will continue to strengthen opening-up reforms and construct harmonious external environments, at the same time as unleashing domestic demand and strengthening innovation. China will make every effort to utilize both international and domestic markets and resources, to reach a stage where domestic and external markets can boost each other, said he.
(Compiled by Wang Qin)