This quote by President Xi clearly outlines the inward tilt of Chinese economic policymaking that is now becoming increasingly obvious to the rest of the world. But it actually has deep roots. Ever since the 2008 global financial crisis, when the West’s reliability as a trading partner was thrown into question, self-reliance has become a more decisive organizing principle for Chinese officials.
As a result, the export-dependent growth model on which China built its economic rise in recent decades has been fraying. Exports as a share of China’s GDP peaked at 35 per cent in 2007 but had fallen to around 20 per cent by last year, a level not seen since before China’s accession to the WTO in 2001. This shows that net exports no longer make any meaningful contribution to Chinese GDP growth.
Although China’s inward tilt may have started out as a response to purely economic phenomena – the post-crisis global recession, belt-tightening in the West, the eurozone crisis, and a general softening of global trade growth in the post-crisis years – geopolitical considerations are now dominant in shaping this shift toward self-reliance.
The role of geopolitics in pushing China towards a more inward-looking development path became clear in China’s response to the aggressive tariffs and export controls introduced by the Trump administration in the US. Because of these new constraints on China’s access to international markets and technology, Beijing sought to limit its dependence on the rest of the world.
The most obvious result of this was the introduction of the ‘dual circulation’ strategy in May 2020, which sets out a rebalancing of China’s economy away from a reliance on external demand as a stimulus to growth (‘international circulation’) towards increased self-dependence (‘domestic circulation’).
Russia’s invasion of Ukraine has provided another geopolitical impetus to China’s pursuit of self-reliance. Since it is not far-fetched to think that China, like Russia, might one day also face coordinated sanctions, Chinese authorities must be thinking hard about how to respond to such a risk.
The only credible strategy that China can adopt is to reduce its economic dependence on the West by creating, in effect, a kind of economic fortress, as its dependence on imported technology, food, and fossil fuels in particular, has created a substantial strategic vulnerability.
Over the next few years, Chinese policymakers will likely attempt to build up the country’s ability to supply its own semi-conductors, food, and green energy sources.
This new approach to economic policymaking isn’t just about China’s relationship with the rest of the world. Within China itself, a new emphasis on the role of the state is increasingly apparent – and seemingly rooted in ideology.
The previous National Congress of the Chinese Communist Party (CCP), in October 2017, made a push for ‘stronger, better, and bigger’ state-owned enterprises (SOEs) and the past five years have indeed seen a measurable rise in the role that SOEs play in the Chinese economy. These firms now account for more fixed investment in the economy than private firms, for the first time since 2005.