Beijing is seizing the opportunity to retool its economy and cement its superpower status while the world continues to grapple with Covid-19.
As the Covid-19 pandemic continues to ravage the global economy, China is emerging from it stronger than ever.
China was the only major economy in the world that saw an expansion last year, seeing its gross domestic product increasing by 2.3%. In November, President Xi Jinping announced that China has eradicated extreme poverty one month ahead of schedule, which he touted as “a miracle” and an homage to celebrate the Communist Party’s centenary.
For more than a decade, the world has been keeping a watchful eye on China’s growing power. Regardless of what Beijing claims about its superpower ambitions, or lack thereof, the decade ahead will see China graduate as an emerging power and consolidate its position as a regional, if not global, hegemon. And, as the world grapples with the challenges of the pandemic, Beijing has been preparing for the transition.
The most notable change in China is the new development paradigm dubbed the “Dual-Circulation Strategy”. It entails two economic circulations – the internal and external – reinforcing each other in a complementary way.
The Dual Circulation Strategy represents Beijing’s attempt to balance internationalisation with a greater emphasis on self-sufficiency. Essentially, China’s domestic economy will now be the main growth driver, shifting away from export-led growth.
To be clear, “Made in China” is here to stay. However, it will no longer be associated with cheap and inferior goods, as it has been in the past. Instead, this shift seen in “Made in China 2025” aims to upgrade industries to help China become a technological power. In short, China’s economy is attempting to develop in sophistication and the Dual-Circulation Strategy represents a qualitative shift towards higher technological output.
This also means that China’s flagship Belt and Road Initiative (BRI) will see major revisions. As a key driver of external circulation, BRI investments will be more centred around national economic targets. Where it previously emphasised infrastructure projects, BRI’s new direction will zero in on digital economy and technological innovation.
This dramatic shift in China’s economy is largely motivated by its “trade war” with the United States. The Trump administration’s decoupling from China and the fragile global supply chains exposed by the Covid-19 pandemic have forced China to seek greater self-sufficiency. Backed into a corner, such conditions further drive Beijing’s ambition to be the most powerful economy in the world.
This shift in China’s development will have massive consequences for geoeconomics, which will be most deeply felt in Southeast Asia. Although China’s domestic economy will be the mainstay, there are no signs that China will neglect external trade, as its initiatives abroad are still central to its success.
By all indications, strong trade and political relationships with Asean states will remain a priority for China, and it will seek to further deepen cooperation with its regional neighbours, especially through BRI investments in tech, which is in high demand in the region.
These new aspects of China’s economic directions provide risks and opportunities for Malaysia. As a strong BRI partner, Malaysia is set to incur some losses as Beijing shifts its attention away from infrastructure projects. On the other hand, the BRI’s new high-tech focus aligns perfectly with the rising demand in Malaysia’s growing tech sector. Specifically, China’s focus on technological innovation is exactly what the Malaysian economy needs.
While this represents an opportunity for both Malaysia and the region, closer, co-dependent relations with China may also be incompatible with Asean’s independent foreign policy principle. In the past, Beijing has been accused of leveraging the BRI to control Asean states’ South China Sea policy. Asean states may continue to hedge, but if external partners do not pay closer attention to Southeast Asia, the region risks falling deeper into China’s orbit.
A new economic paradigm like the Dual-Circulation SStrategy is the necessary next step for China. For decades, China has been able to maintain impressive double-digit growth, but economists have long questioned its sustainability. To reach its aspiration as a fully developed country, China must reform its economy from low-end manufacturing to high-end services, and the Dual Circulation Strategy plans to deliver that. If successful, Beijing’s rise to superpower status will be more assured.
This article also appeared in New Straits Times on 20 May 2021.