China is pushing a "dualcirculation" development pattern to sustain growth in the coming years,building up strength in both domestic demand and foreign trade to meet challengesin a new development stage.

The "dual circulation"development paradigm, in which domestic and overseas markets reinforce eachother, with the domestic market as the mainstay, was mentioned as a guidingthought in a blueprint for China's development in the next five to 15 years,which is under review at the "two sessions."

"We will advance the building of astrong domestic market and a strong trading nation in a concerted way, based onthe domestic circulation," said the draft outline of the 14th Five-YearPlan (2021-2025) for national economic and social development and thelong-range objectives through the year 2035.

Anew mode for development

First put forward at a meeting of thePolitical Bureau of the Central Committee of the Communist Party of China inMay last year, the idea is expected to guide China through the post-COVID-19recovery and help it better connect with the world.

The key to building a new developmentpattern lies in unimpeded economic circulation and industrial connectivity,according to an article by Vice Premier Liu He expounding on the new paradigm.

The fundamental requirements are enhancingthe creativity and connectivity of the supply system, removing variousbottlenecks of development, and smoothing the circulation of the nationaleconomy, Liu wrote.

Despite the impact of the COVID-19pandemic, the new development pattern comes not as a passive, short-termresponse, but as an active policy choice based on changes in the country'sdevelopment conditions and demand for long-term high-quality growth.

Since the 2008 global financial crisis,Chinese authorities have put forward strategies including expanding domesticdemand and supply-side structural reforms, suggesting the gradual shift towardinternal circulation has long been underway, said Liu Yuanchun, vice presidentof the Renmin University of China.

Currently, protectionism andanti-globalization are on the rise, but the main driving force for the newdevelopment pattern is the shift in China's comparative advantage from a cheaplabor force to huge domestic consumption potential, said Yao Jingyuan, aresearch fellow at the Counsellors' Office of the State Council.

The draft plan also called for efforts toexpand the middle-income group in order to unleash the consumption potential.

A smooth domestic economic cycle alsorequires advancement on the supply side, lawmakers and political advisors said,calling for more policy measures to boost innovation.

It is a natural choice to focus on thedomestic market as China's per capita GDP rises above 10,000 U.S. dollars andits middle-income population exceedings 400 million, entailing massopportunities at home. China is already an upper middle-income economy by theWorld Bank standard.

The number is likely to double by 2035 amidgovernment efforts to push urbanization, making China the biggest consumptionmarket in the world, said Li Daokui, an economist with Tsinghua University anda national political advisor.

'DualCirculation' emphasizes opening up

The domestic circulation will be key to thenew development pattern, with detailed measures to be rolled out to expanddomestic consumption and smoothen supply chains.

The country will remove impediments to therational flow of production factors, and create a higher-level dynamicequilibrium where supply and demand boost each other, according to the draftoutline.

The country should move faster to supportthe upgrade of companies so that they can tackle the bottlenecks constrainingtheir growth, said Liu Yonghao, chairman of China's agricultural conglomerateNew Hope Group and a national political advisor.

The domestic farming industry, for example,still depends on overseas imports in terms of breeding animals including pigsand poultry, and research on new breeding varieties could reduce externalreliance and boost profitability, Liu said.

The draft outline has identifiedself-reliance in science and technology as a strategic underpinning fornational development. For the next five years, China's research and developmentspending will grow by over 7 percent annually, it said.

While the domestic market is key to the newdevelopment paradigm, "dual circulation" is by no means a closeddomestic loop.

China will work to promote the coordinateddevelopment of both domestic and external demand, imports and exports, as wellas foreign and outbound investment, the draft outline said, stressing that thecountry stays committed to further opening-up.

Ning Jizhe, deputy head of the NationalDevelopment and Reform Commission, said that the country would further improvethe business environment for foreign investment, implementing policiesincluding cutting the number of sectors off-limits for foreign investors andincentivizing overseas investors in participating in the high-qualitydevelopment of its manufacturing industry.

For Li Dongsheng, chairman of Chineseelectronics giant TCL Group and a national lawmaker, the "dualcirculation" is not only a development strategy at the national level, butalso reflects the development needs of Chinese enterprises amid risinganti-globalization sentiment.

While proposing that China should step uppolicy support for tech innovation to smoothen the domestic cycle, Li alsosuggested the government mobilize resources to facilitate the global operationand layout of firms.

Thestrategy is working

China's expanding opening-up of the capitalmarket is an obvious sign the country is putting in great effort to letinternal and external markets boost each other as part of its "dualcirculation" strategy, said Eugene Qian, chairman of UBS Securities in Beijing,on March 20.

"China's per-capita GDP has surpassed$10,000, and the country boasts a large affluent population, such as enterpriseowners who have a demand for wealth management and succession," he said.

On the other hand, China's big financialinstitutions are also serving as clients for UBS. So, Qian added, "It is avery favorable, collaborative environment for all our key businesses in China…Isee a promising market here."

"China will for sure bring very largegrowing space for years for us. China is of the utmost importance, as I'vealways said," Qian said.

China's market mass, and its developingstage with a growing institutionalization, professionalization andinternationalization, created opportunities for UBS. All UBS businesses areable to find promising prospects in China. "We will increase input,"Qian noted.

Qian said registration-based reform is amilestone for China's capital market over the past 30 years. It is the firsttime the system leveled its capacities in A-share issuance to internationalstandards, and improved predictability in favor of stock issuers,intermediaries and investors during the floating process.

Financial services are highly related tothe national economy, Qian said. The A-share market saw relatively goodperformance in 2020.

"As long as the national economycontinues to recover and growth remains stable in 2021, the RMB will stay at arelatively stable level. These factors will lure foreign investors to keepentering the A-share market," Qian said.

"China is the first major economy torecover from the pandemic; its economy is able to be back on a healthy andgrowing track," Qian noted, adding even if there is about 5 percent growthin GDP, average growth will be still remarkable. He holds a generally positiveview on China's economic recovery and growth after the pandemic.

Qian said the volatility in China's stockmarket earlier this year was a technical adjustment, given the pandemic'simpact last year. Though China has gone through the most severe period of thepandemic, the situation in the US and Europe is not clear. It is not sure whenthe other economies will regain their level of growth as before the pandemic.This is one reason for the volatility, he said.

"The A-share market will not always bein adjustment. In the mid- and long-term, it is expected to be a stable andslow-bull market," Qian said.