An Insight Into China’s International Policy From the ‘Dual Circulation’ Economic Model

A man walks on the bund in front of the financial district of Pudong in Shanghai, China, on March 9, 2016. (Aly Song/Reuters)

Commentary

Amid drastic international and domestic changes, the Chinese Communist Party (CCP) recently claimed to have made a major strategic deployment—accelerating the formation of a “dual circulation” economic model that centers on “internal circulation” and having “international circulation” play a supporting role.

What is this so-called international economic circulation and what does the CCP plan to do? To answer these questions, we must look beyond the economic aspects, and examine it from a historical perspective.

Today’s CCP is Built on an ‘International Cycle’

Since the discovery of all seven continents, people of the world have increasingly interacted with one another. Thus, we can say that globalization has been going on for 500 years. Eventually, the specter of communism came to the human world through Marx, Lenin, and Stalin. It is not merely a theory, but also a devastating political system. Today, communism has swept the entire world and wreaked havoc for more than 100 years.

It can be said that without globalization there would be no communist movement. At the same time, governing and controlling all mankind through globalization is precisely the goal of the communist movement. Marx said that “workers have no motherland” and “proletarians all over the world, unite!” Socialist revolutions should occur simultaneously in developed countries, and internationalism is emphasized. Lenin and Stalin also claimed their ultimate goal was “world revolution.”

The most important achievement of Lenin and Stalin’s “exporting revolution” was to help the CCP seize power in China. However, after Stalin’s death, Mao Zedong sought to become leader of the socialist camp. Not only did he break China’s relationship with the Soviet Union, to the point of almost starting a war, he also vigorously aided foreign countries, which was an outrageously absurd move as China was in severe poverty at the time.

For instance, according to official reports, China’s foreign aid expenditure rose from the initial 1 percent of fiscal expenditure to 6.7 percent in 1972, and 7.2 percent in 1973, then 6.3 percent in 1974, exceeding China’s capability. In those three years, the vast majority of Chinese people were struggling in poverty and starvation. As a matter of fact, China’s foreign aid program has never stopped since Mao started it in the 1950s, even during the three years of the Great Famine (1959-1961) when tens of millions of Chinese civilians died from starvation.

In comparison, the United States, the world’s number one country in foreign aid, provided $50.1 billion in total foreign aid in the fiscal year of 2017, when the U.S. GDP was as high as $19.49 trillion.

What is more absurd than the scale of China’s foreign aid is the fact that almost all of it was in vain. Let’s look at two typical examples.

China provided generous aid to Albania several decades ago. According to then Minister of External Relations Geng Biao, from 1964 to the late 1970s, Albania was given as much as 9 billion yuan ($1.32 billion), equivalent to sending a red envelope of more than 4,000 yuan ($585) to each citizen of Albania, a country of 2 million at that time.

However, Albanian dictator Enver Hoxha later called Mao a “racist” who wanted to “enslave all mankind.”

China also generously assisted Vietnam. When Singapore’s then Prime Minister Lee Kuan Yew visited China in 1976, Deng Xiaoping told Lee that China gave Vietnam $20 billion in aid and asked for nothing in return. However, due to ideological conflicts in the following years, the Sino-Vietnamese War broke out on the border between the two countries in 1979.

To avoid criticism, the CCP concocted ridiculous logic to brainwash the Chinese people, such as “China should continue to hold high the banner of internationalism because the foreign aid program is politically and strategically beneficial” and “our African allies helped us become a member of the United Nations.”

In recent years, in addition to maintaining its cooperative relationship with developing countries, the CCP has shifted its focus to utilizing Western countries’ capital, technology, markets, and international order to engage in the so-called international economic cycle. As a result, China became the world’s second largest economy, the world’s largest trader in goods, and had the largest foreign exchange reserve by 2010.

The New China-US Cold War Will End the CCP Dream

Mao presumed that there would be another world war and proposed to start it “as early as possible, fight to the largest extent, and deploy nuclear weapons.” After Deng Xiaoping came to power, he believed that the third world war could be avoided and initiated through “reform and opening up.” The CCP took full advantage of Western countries’ appeasement policy and wishful thinking that China would transition to a normal country through economic development, and successfully embraced the past several decades as a “strategic opportunity period.”

Since 2002, the CCP has reiterated, at its national congresses, that China must “go all out to grab this strategic opportunity period which is of great importance and great potential.”

However, since Donald Trump became the U.S. President, U.S.-China relations have reached a historic turning point. An even more drastic change occurred after the outbreak of the COVID-19 pandemic, which started a new cold war between the two countries.

The United States has countered the CCP and waged a full-scale war in seven major areas: criticizing the CCP’s cover-up of the pandemic, supporting Hong Kong’s pro-democracy movement, trade and finance, technology, military, international politics, and CCP propaganda.

In particular, from July 21 to Aug. 11, the Trump administration fired six “cannonballs” at Beijing, indicating an accelerated decoupling from the CCP: 1) closing the Chinese Consulate in Houston; 2) Pompeo promoting the “Clean Network” program; 3) Trump signing an executive order to ban the Chinese apps TikTok and WeChat; 4) the United States sanctioning 11 senior officials from China and Hong Kong; 5) U.S. Secretary of Health and Human Services Alex Azar leading a delegation to visit Taiwan on Aug. 9, a rare high-level visit to the island nation that last occurred in 1979; and 6) delisting non-compliant Chinese companies from the U.S. stock exchange.

These are a disaster for the CCP, which is a paper tiger that looks fierce on the outside but is actually a coward. Unable to counter these blows, the CCP’s only resort was to use lies to keep things on an even keel. According to state-run Xinhua News Agency, CCP top leaders stated at the Politburo meeting that “China is still in the stage of strategic opportunity, but the opportunities and challenges we face are undergoing new changes.”

However shameless they are, the CCP leaders can’t cover up the fact that the new cold war between China and the United States has begun. How can there still be a “strategic opportunity period” for the CCP when the two countries have entered a confrontational stage?

The CCP Will Doggedly Try to Sustain an ‘International Cycle’

Some commentators interpret the CCP’s newly proposed “dual circulation” economic model as returning to the “state of closure” like it was 40 years ago. That is an incorrect understanding.

Without the “international cycle,” there would be no CCP and the CCP would not have been able to become what it is today. After “reform and opening up,” the interests of the CCP became internationalized, and the CCP’s ambitions have become more globalized. Can the CCP let go of its swollen ambitions and vested interests? The United States is aiming at disintegrating the CCP by starting a new cold war. Will the CCP allow its demise without any resistance? For profits, ambition, and survival, the CCP will certainly resist to the death; and will rely on “mutual promotion” of the “domestic cycle” and the “international cycle.”

Judging from past CCP policies, its desperate effort to sustain the “international cycle” will at least include the following actions.

1. Shouting the slogan “a community of shared future for mankind” and supporting “globalization.”

China published a white paper titled, “China and the World in the New Era,” on Sept. 27, 2019, in which Chinese authorities claimed that “China’s development is an opportunity for the world.” Their real goal is to promote the China model to the entire world and infiltrate and subvert the West.

A Foreign Policy commentary published on June 5 pointed out that the CCP is weaponizing globalization, and the CCP’s interference in democratic countries is characterized by five mutually reinforcing factors:

• weaponization of China’s economy;
• attempts to dominate the global conversation about China;
• a reliance on elite intermediaries;
• targeting the Chinese diaspora; and
• a tendency to embed authoritarian norms.

2.   The CCP will try to win over the Western financial and industrial circles and stop economic decoupling by promising to “stabilize finance, foreign investment and foreign trade, and ensure the stability of the industrial chain and supply chain.”

Here are examples of these strategies.

I) Under the impact of the U.S.-China trade war, the CCP drastically opened up its financial industry.

II) After years of planning, starting in 2018, the three major international indexes MSCI, FTSE Russell, and S&P Dow Jones have successively included A shares and the index weight has gradually increased.

III) On May 14, China’s Central Bank announced that it granted license approval to Fitch Bohua Credit Ratings, making Fitch Ratings the second wholly-owned foreign credit company in China after S&P established a unit in China in 2019. At present, only Moody’s Corp. has not yet obtained the filing, but will get it in time.

The above are examples from the financial circle. As for the industrial circle, a typical example is Tesla. In the midst of the rumbling of the U.S.-China trade war, in early 2019, Tesla invested $5 billion and broke ground on a mega plant in Shanghai, Tesla’s first electric car factory outside the United States.

3. The CCP will speed up negotiations with more countries to sign high-standard free trade agreements (FTA) and regional trade agreements.

On July 1, North American Free Trade Agreement 2.0, an agreement between the United States, Mexico, and Canada (USMCA), came into effect. It contains a provision that if any USMCA Party undertakes to negotiate a free trade agreement with China or other non-market economy, the other two Parties may terminate or update the USMCA.

The United States claimed that this clause will be further promoted in trade agreements with other countries, such as the European Union countries, the United Kingdom, and Japan. This effectively excludes the CCP from the global trade structure because China has not been recognized by the international community as a market economy country.

This has forced the CCP to accelerate its own FTA strategy. To date, the CCP has signed 18 FTAs with 25 countries and regions, including Australia, South Korea, and Singapore. It is pursuing 12 FTA negotiations, including bilateral negotiations, with the GCC, Norway, Sri Lanka, Israel, Moldova, Panama, and Palestine, and second-round negotiations with Singapore and South Korea. It is in multilateral negotiations, such as with China-Japan-South Korea, and Regional Comprehensive Economic Partnership (RCEP).

In terms of trade volume, China’s FTA agreements account for 38 percent of its foreign trade.

In addition, the CCP played a leading role in completing negotiations on the RCEP in 2019. China’s diplomatic focus this year is signing RCEP and speeding up the nearly 18-year China-Japan-Korea free trade area negotiations.

4. The CCP will vigorously promote its “One Belt, One Road” (OBOR, also known as Belt and Road) initiative, Asian Investment Bank (AIIB), RMB internationalization, etc. However, in these areas, the CCP has many weaknesses and is struggling with a multitude of difficulties.

Conclusion

Although China has been the world’s second largest economy for several years and seems to be comparable to the United States, as both countries have a GDP of over $10 trillion, there is a huge gap between them in terms of economic strength and worldwide influence.

A simple chip-banning order by the United States can make ZTE surrender and paralyze Huawei. If the United States ever decides to impose financial sanctions, the result would be equivalent to a nuclear bomb landing in China. How can the CCP not be terrified?

It is not because the CCP is unaware of the gap between China and the United States. The CCP pretends that it will become a competitor with the United States should complete decoupling occur. In reality, the CCP desperately attempts to sustain the “international cycle,” revealing that its real intention is to bargain with the United States. It knows clearly that without the United States, its “international cycle” will inevitably run into trouble.

However, the United States has already started a new cold war with China. Is it possible that it will give the CCP another chance?

Wang He has a master’s degrees in law and history, with a focus on the international communist movement. He was a university lecturer and an executive of a large private company in China. He was imprisoned in China twice for his beliefs. Wang lives in North America now and has published commentaries on China’s current affairs and politics since 2017.