(CAI MENG / CHINA DAILY)
The dual-circulation development strategy, which takes the domestic market as the mainstay while letting domestic and foreign markets reinforce each other, was devised amid China's uneven development－not only between eastern, central and western regions, but also between north and south as well as between city and country.
We have made great achievements since reform and opening-up, but China is still a developing country, with obvious unbalanced and inadequate development inherent in a developing country.
The Regional Comprehensive Economic Partnership agreement, which was signed late last year, marks closer economic and trade relations between China and the 10 ASEAN countries, and even all the other 14 signatory countries. That means that future economic and trade cooperation between China and the ASEAN will enjoy more healthy, stable and rapid development
How to solve this? Dual-circulation development is a very effective strategy. We must take the domestic cycle as the mainstay and let the domestic and international cycles promote each other to build a new development pattern. For the domestic cycle, the key task is to increase domestic demand, especially household consumption. But this cannot happen overnight.
To boost consumption, we must first ensure employment. To stabilize employment, we need to energize market players to ensure enterprises survive COVID-19. Facing a once-in-a-century pandemic, we must use a prudent monetary policy to help enterprises, and provide them diversified financing channels so that enterprises can operate normally to guarantee employment.
There are two measures. One is using a prudent monetary policy to help protect market entities and stabilize employment so as to stimulate household consumption slowly over the long haul. The other is to increase disposable incomes. Only when the proportion of after-tax income to total income increases can residents truly enjoy the dividends of reform to further stimulate domestic demand. To achieve this requires the government to reduce taxes and fees, and reduce operating and living costs of businesses and residents.
Moreover, tax cuts and fee reductions require the government to make up the difference via proactive fiscal policy. Therefore, proactive fiscal policy is used in conjunction with a stable monetary policy to work together to stimulate domestic demand and increase consumption.
In 2007, exports accounted for about 32 percent of the nation's gross domestic product, the highest level ever recorded. The ratio has declined to about 18 percent currently. As China's GDP grows, the proportion of exports to GDP will decline until reaching an equilibrium point wherein imports and exports together account for about one fourth of the GDP.
In other words, China will remain the world's largest exporter, with the amount of exports increasing. As labor costs rise in China, its comparative advantages in labor-intensive industries is weaker, but that doesn't mean the role of exports in the economy is declining. Meanwhile, exports from capital-intensive industries such as mechanical equipment and electric devices are growing and have replaced labor-intensive exports to become the most important components of exports.
China's exports have performed well with good growth momentum. If you look at things from a longer term perspective, what are the comparative advantages of China's exports?
Before 2008, China's labor costs were relatively cheap, and the proportion of exports to GDP remained at high levels for an extended period.
However, since 2008, China's labor costs have been rising, and wages are no longer low.
If compared with the United States, China's labor costs are of course cheaper. However, China and the US export different products to each other, and it is not the US that is competing with us for the markets in the US or other developed countries, but instead other emerging industrial countries, mainly in Southeast Asia.
Compared with them, China's labor costs are much higher. As early as 2014, China's labor costs were already four times that of Bangladesh, while our labor productivity is not four times that of the South Asian nation. China's labor-intensive products, such as clothes, shoes and hats, have little to no comparative advantages. As a result, cheaper labor costs are no longer the main comparative advantage of China's exports.
A unified domestic market is a source of our core competitiveness, and it is also the core reason why we take the domestic market as the mainstay. Once the market expands, more goods can a company sell to reduce its own fixed costs. Fixed costs remain the same as a company starts production. Therefore, the more goods a company sells, the lower the fixed cost of each product will be, and the higher the profits for the company. Through such an economic structure, the competitiveness of products can be raised, and that is the core competitive advantage of China's exports.
China's exports in the second half will continue to have a relatively good upward momentum, and the trade surplus may reach 2 trillion yuan (US$310 billion) in the period to make the full-year trade surplus reach about 3.6 trillion yuan, maintaining the same level as last year.
One reason is that even if the European and US economies recover, they need time to resume production. During that period, they need Chinese products.
Furthermore, exports in the second half will be affected by first-half orders. Orders between China, Europe and the US were signed in the first half, which will keep China's exports in the second half of the year stable.
Statistics showed that trade between China and the European Union has already surpassed trade between China and the US. It is even more interesting that China's trade with the Association of Southeast Asian Nations has surpassed China-EU trade. In other words, China's biggest trading partner now is not the US, nor the EU, but the ASEAN.
That gives us some transparency. First, as Sino-US relations remain complex, Sino-EU relations－especially economic and trade relations－will gradually overshadow Sino-US economic and trade relations.
We can see that the overall investment and trade volume between China and Europe will gradually exceed that between China and the US, especially as the China-EU Comprehensive Agreement on Investment progresses despite some fluctuations in the first half, with some resistance from the European Parliament.
I believe resistance will soon fade, because the EU desperately needs the China market and the CAI is win-win for both participants. From a certain perspective, the EU needs the China market more than China needs the EU's. I think that the CAI may show substantial progress very soon. If we need to specify a time span, it is probably within six months to a year.
Second, we must pay more attention to the development of China-ASEAN relations. We see that ASEAN is now China's largest trading partner. In fact, when we talk about the construction of the 21st Century Maritime Silk Road, one of the most important parts is relations between China and the 10 ASEAN members. Currently, China's investment in ASEAN member countries is several times that of China's investment in the countries in West Asia, let alone in other geographic regions.
Because of this, we should give priority to the Maritime Silk Road cooperation in the next step, since economic and trade cooperation between China and the main countries of the Maritime Silk Road has a historic foundation and can help further enhance bilateral relations.
The Regional Comprehensive Economic Partnership agreement, which was signed late last year, marks closer economic and trade relations between China and the 10 ASEAN countries, and even all the other 14 signatory countries. That means that future economic and trade cooperation between China and the ASEAN will enjoy more healthy, stable and rapid development.
The author is deputy dean and Party secretary of the National School of Development at Peking University.
The views don't necessarily reflect those of China Daily.