Profound Economic Changes Prompt 'Dual-Cycle' Theory
A new development strategy was unveiled at a meeting of the Political Bureau of the Chinese Communist Party's Central Committee on July 30. That strategy – which embraces a "dual cycle" concept – calls for taking the domestic economy as the focus and supplementing that with the interaction of domestic and international activities. It reflects the profound economic changes that came about as a result of the Covid-19 pandemic. It is a solution to the new political and economic circumstances and the Chinese economy's long term requirement of ensuring high-quality development. Efforts need to be made to focus on the domestic component to boost this dual cycle and the potential of domestic demand should be unlocked to address the structural imbalances of the domestic economy. This is extremely important if China is to achieve "leapfrog" style development and innovation-driven economic growth.
The Covid-19 pandemic in 2020 plunged the global economy into deep recession，intensified the dispute between China and the US，and greatly affected the global supply chain. Even before that - in 2018 - President Xi Jinping pointed out that the world was undergoing profound changes that had not been witnessed in over a century. Key elements of these changes were US unilateralism and trade protectionism and they brought severe challenges to established global practices and the existing world order. They also exerted a negative influence on relations between major countries. The new development pattern featuring “dual circulation” is an important strategic plan and requirement to adapt to these new changes in the external environment.
Over the past few decades，global cooperation and the distribution of labor have been optimized under the impetus of economic globalization. Over the same period，a relatively complete industrial production system and integrated industrial chains have been formed in China. These have been tightly linked to the global value chain，accounting for about 30% of the added value of the global manufacturing sector and 23% of global imports and exports. However，industrial re-shoring efforts，intensified China-US trade friction，and changes in global cost competitiveness under the impact of the pandemic have since had a significant impact on this international arrangement.
The changes are reflected in the following three areas. First，more than one country has discovered shortcomings in its medical infrastructure and an over-dependence on China as a result of Covid-19. That has accelerated the re-shoring effort in the manufacturing sector and may lead to the repositioning of global industrial chains in public health care，national security and other basic industries. China-US trade friction has also weakened the competitiveness of Chinese products in the United States. So far，14 out of the top 15 categories of Chinese goods exported to the United States have lost market share over the past four years. These include not only labor-intensive products，but also high value-added items. Mexico has been a key beneficiary of this lost ground.
Additionally，the Association of Southeast Asian Nations (ASEAN) has grabbed more market share from China in labor-intensive products，benefiting from lower costs for labor and resources.
More importantly，there is a new pattern to China-US relations with competition between the two countries expanding to cover trade，finance，technology，ideology，military matters and other areas. Moreover，the friction is intensifying.
In the political sector，President Trump could still take additional action.
In the technology sector，the US government ordered the sale of the US operations of video sharing network TikTok and moved to ban the messaging，payment and social media app Wechat. The actions against the two highly popular Chinese businesses were aimed at decoupling China from the United States in the technology sphere. The United States has imposed a series of executive orders against Chinese technology companies，involving not only "core technology" entities，but also those "soft technology" enterprises such as TikTok. If the trend of technology decoupling continues，the result could be a new type of digital Iron Curtain with far-reaching effects.
In the financial sector，the US has moved to tighten restrictions on overseas financing by Chinese companies. Recently，the dispute between China and the US on accounting standards and audit cooperation has taken a turn for the worse. US Treasury Secretary Steven Mnuchin claimed that companies from China and other countries that do not meet US accounting standards would have to be delisted from US exchanges by the end of 2021. The Holding Foreign Companies Accountable Act (which still needs resolution between the House and Senate versions and the signature of the president) could result in severe pressure on Chinese companies listed in the United States. In addition，the United States may also impose more sanctions on some Chinese-funded financial companies.
However，changes also indicate opportunities and challenges. The transition from the "international cycle" to the "new dual-cycle" development architecture reflects an active strategic choice and adjustment to these profound changes in the global economic and political environment.
Strong Resilience
Despite the Covid-19 pandemic，China's economy has shown strong resilience，recording GDP growth of 3.2% year on year in the second quarter. China became the first country to emerge from the global pandemic. However，in spite of the rapid recovery of China's economy，there is a structural imbalance in four areas，and this poses challenges to the sustainable development of our economy.
First，the recovery on the demand side has been slower than on the supply side. Industrial production is now recovering rapidly，as reflected in the 4.8% industrial output growth rate，which is close to pre-pandemic levels. The demand side，however，is suffering from a relatively slow recovery，with total retail sales of consumer goods posting negative 1.1% growth in July.
Second，the industrial sector has recovered faster than the service sector. The GDP growth rate of the secondary industry registered a sharp rebound of 14.3 percentage points to 4.7% in the second quarter，while the growth rate of the tertiary industry was 1.9% for an improvement of 7.1 percentage points. Some service industries (such as accommodation and catering，leasing and business services) are still recording negative growth rates.
Third，large companies have done better than small and medium enterprises. In July，retail sales of consumer goods by smaller businesses were down 3.7%，worse than the performance of larger businesses. That was the fifth month in a row that smaller firms underperformed larger ones，and the gap over that period widened. The Purchasing Managers' Index for the manufacturing sector also indicated that smaller companies were having more difficulty than larger companies.
Fourth，there was an imbalance between the real economy and the financial sector. Under the impact