CEO DailyCFO DailyBroadsheetData SheetTerm Sheet

Xi Jinping’s new economic strategy for China: ‘Dual circulation’ or doublespeak?

October 15, 2020, 11:00 AM UTC

This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.

Chinese President Xi Jinping traveled to Shenzhen on Wednesday to mark the 40th anniversary of that city’s establishment as a “special economic zone.”

The trip was billed as a celebration of the policy change that set in motion Shenzhen’s extraordinary transformation from rural backwater to global manufacturing colossus. Modern Shenzhen is home to 13 million people, the world’s biggest Foxconn factory, and the headquarters of tech powerhouses like Huawei Technologies, Tencent Holdings, and DJI Technologies. Since 1980, Shenzhen’s GDP has expanded by an estimated 10,000-fold to $360 billion and now exceeds that of Hong Kong, the financial hub just across the Pearl River.

The catalyst for that metamorphosis was a decision by Deng Xiaoping, then China’s “paramount leader,” to create a capitalist enclave in communist China and open it to foreign investment, global trade, and Western technology. Shenzhen became the testbed for economic reforms gradually introduced throughout the rest of China. Deng called the hybrid model “capitalism with Chinese characteristics.”

Xi embraced Deng’s legacy yesterday. He laid flowers at the feet of the six-meter bronze statue of Deng that stands in Shenzhen’s Lianhuashan Park. In a 50-minute speech he vowed to carry on Deng’s agenda of “reform and opening up.”

But Xi made clear that his interpretation of “reform and opening up” differs starkly from that of his predecessor. At the top of a long list of lessons from Shenzhen’s success, Xi cited not entrepreneurialism, private sector initiative or market competition but “adhering to the Party’s leadership.”

Xi invoked a favorite Deng aphorism: China must “cross the river by feeling the stones.” Deng meant that the nation must be flexible, pragmatic, and willing to adapt to obstacles as they emerged. Xi, meanwhile, wrapped it in clunky bureaucratic jargon that communicated the exact opposite: “We must have greater political courage and wisdom and combine ‘crossing the river by feeling the stones’ with strengthened top-down design to steadily deepen reforms in important areas and pay more attention to the system.”

Xi’s own economic agenda to date has been all about “strengthened top-down design.” He has consolidated the Communist Pary’s control over nearly ever major economic policy-making body and his own control of the party. He has leaned on China’s giant state-owned banks to prop up state-owned enterprises, pushed private companies and investors into partnerships with state-owned firms, forced private companies to set up party committees with increasing say over strategy, and doled out vast state subsidies to induce companies to pursue state-led industrial policy objectives.

Last month, even as Chinese companies like Huawei and TikTok parent ByteDance scrambled to persuade American lawmakers that they are independent private entities—and would never compromise the privacy of American customers even if ordered to by Beijing—Xi publicly exhorted the United Front Work, a department responsible for projecting party’s influence at home and abroad, to unite the private sector around the party.

In recent months, as the Trump administration has stepped up its efforts to restrict Chinese companies’ access to American technologies, Xi has amplified his call for Chinese firms to develop their own technologies and become more self-reliant. In Shenzhen yesterday, Xi warned that “the world has entered a period of turbulence and transformation,” and praised Shenzhen for showing that China must “gain the initiative in the global technological revolution.”

In May, Xi floated a new strategic concept he called “dual circulation growth strategy,” which he referred to again yesterday. China watchers seem mostly perplexed by the concept. The Wall Street Journal‘s Lingling Wei ventured that the strategy involves “prioritizing domestic consumption, markets and companies as China’s main growth drivers” while relegating investments and technologies from overseas to “more of a supporting role.” The New York Times‘ Chris Buckley tried to explain the idea this way: “The grandly technocratic name…means China should rely on a robust cycle of domestic demand and innovation as the main driver of the economy while maintaining foreign markets and investors as a second engine of growth.”

But as Buckley observes, China has been promising since before the Great Financial Crisis to boost domestic consumption and reduce its dependence on exports, with mixed results. The danger for China is that Xi’s dual circulation strategy is mostly doublespeak for import substitution and massive misallocation of resources by government planners—an approach closer to Mao’s disastrous Great Leap Forward than Deng’s triumph in Shenzhen. This brilliant piece by Financial Times correspondent Kathrin Hille suggests that’s exactly the outcome of China’s headlong rush to catch up with the U.S., Taiwan, and South Korea in the semi-conductor industry.

Bo Zhuang, chief China economist at TS Lombard, argues dual circulation strategy “is not a proposition to turn China into a ‘closed economy,’ as was the case during the Mao era. Rather it is a pragmatic policy choice against the backdrop of de-globalization and the worsening U.S.-China relationship.” The strategy, Zhuang contends, “aims to build up domestic economic strength through rebalancing in the face of intensifying external risks while maintaining China’s deep engagement with the global supply chain.”

Whatever it is, Xi’s “dual circulation strategy” seems destined to be the centerpiece of China’s 14th five-year economic plan, to be endorsed later this month at a meeting of the party’s Central Committee. Stay tuned.

More Eastworld news below.

Clay Chandler

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at

Eastworld news

The state of Jio

2020 has been a breakout year for Mukesh Ambani, India’s richest man. This year Ambani has helped transform Reliance Jio, traditionally an energy giant, into India’s hottest tech company via his empire’s tech offshoot Jio Platforms. Starting with Facebook’s $5.7 billion investment into Jio Platforms this spring, Ambani has raised over $20 billion from firms in Silicon Valley and elsewhere. Ambani now dreams of turning his empire into a global tech behemoth and his influence in India is reportedly unparalleled. “Reliance operates as an independent state within a state,” an anonymous government official told the Financial Times.

America’s decline, China’s triumph

Trump is accelerating America’s decline, and that’s good for China. Or at least that's the prevailing thinking among China’s top policymakers, argues Rush Doshi, director of the Brookings China Strategy Initiative, in a new Foreign Policy essay. Doshi says Chinese strategists viewed Brexit and the election of Donald Trump as the West voluntarily abandoning the very global order it set up, providing China with an unprecedented opportunity to fill the void. Dosh sites a Chinese scholar who says Beijing would prefer the U.S. to realize the “decline of its hegemony” but it is “not necessary.” Foreign Policy 

Pain and gain

On Oct. 7, Kim Nam-Joon (known as RM), leader of K-pop band BTS, said that the U.S. and South Korea shared a history of “pain” and “sacrifices” at a ceremony commemorating the Korean War. Chinese social media users were offended that the group did not acknowledge the sacrifices of Chinese soldiers who fought for North Korea. The backlash against BTS prompted major South Korean brands like phone maker Samsung and car company Hyundai to scrub references to BTS from their Chinese social media accounts. The controversy seemingly did not dent the blockbuster debut of Big Hit Entertainment, BTS’ management label, which had its stock price double after it started trading in South Korea on Thursday. Fortune

The casual wear epidemic

Who needs a business suit in a pandemic? Tadashi Yanai, founder of casual clothing empire Uniqlo, has banked his success on the idea that people no longer seek to demonstrate material success through clothing. This idea has flourished amid a pandemic that has more people at home—and in less formal clothing—than ever before. During the pandemic, Uniqlo has also moved more sales online and launched a popular ‘quarantine wear’ line that includes a smash hit new face mask. Now, Yanai is planning expansion. “We are going to set up more stores than before," Yanai told the Nikkei Asian Review. "Southeast Asia, especially, is a dollar box." Nikkei Asian Review

Tea time

Milk Tea and a three fingered Hunger Games salute have unexpectedly become symbols of solidarity for activists across Asia in various political struggles. This spring Thai, Taiwanese, and Hong Kong activists formed the #Milkteaalliance, a nod to drinks popular in each place, to counter the influence of Chinese social media users and bots on social media platforms. The alliance has since inspired offline meet-ups and grown to galvanize pan-Asia support for pro-democracy struggles. The Atlantic

Huawei's little brother

While the U.S. has waged a war against Chinese telecom giant Huawei, it has also quietly thrown a lifeline to ZTE, Huawei’s state-backed telco rival. Over the last few years, ZTE has paid fines of $2.3 billion to the U.S. for violating U.S. sanctions against Iran and North Korea, but, as Trump announced in a tweet, the U.S. in 2018 decided to re-allow ZTE to purchase American equipment and do business around the world. Experts believe that the U.S. may be effectively opting to spare ZTE as a means to sharpen focus on defeating ZTE’s more powerful and sophisticated rival, Huawei. The Wire China

Coronavirus by country

Sri Lanka

This spring, Sri Lanka managed to largely contain COVID-19 outbreaks via a highly restrictive two-month lockdown. The country also drew global praise for its hi-tech public health surveillance and reporting system. But after months of relative calm, the country is now dealing with its largest outbreak to date, after a factory cluster in early October has now infected thousands. The outbreak is putting the country’s pandemic response system to the test, and while authorities have avoided another full-fledged lockdown, the government has imposed curfews, closed bars, restaurants, and casinos, and banned Sri Lankan expats from returning home. Even with the outbreak, only 13 of the country’s roughly 5,038 confirmed cases have succumbed to the virus, ranking among the lowest death rates in the world. Bloomberg

Markets and movers

Lufax – The Chinese financial technology firm filed for a U.S. IPO last week in a debut that may raise the company $3 billion, potentially the largest Chinese IPO in the U.S. in 2020. Lufax’s case shows that the U.S. remains a popular IPO destination for some Chinese companies, even as U.S. regulators have increased scrutiny of Chinese companies on American exchanges. Fortune

Ant Group – The U.S. state department has proposed adding the Alibaba-backed financial services firm to the U.S.’s trade blacklist in the run-up to the firm’s upcoming blockbuster IPO in Shanghai and Hong Kong. In China, Ant Group is facing scrutiny over a proposal to sell retail investors shares exclusively through its own mobile payments app. Reuters

Evergrande – The Chinese property giant only raised half of a targeted $1.09 billion after founder Hui Ka Yan cut out his billionaire friends from the fundraising round. Hui’s measure was designed to increase investor confidence in the firm but appears to have had the opposite effect as shares in Evergrande tumbled 17% on Wednesday. Bloomberg

Tiktok – On Wednesday, the ByteDance-owned video streaming service asked a U.S. federal judge to block proposed restrictions that would halt downloads of the app following a Nov. 12 deadline for the U.S.'s TikTok ban. Bloomberg

Tencent – The Chinese tech giant plans on increasing its stake in Universal Music Group from 10% to 20% through exercising an option that expires in January. Last year, Tencent purchased a 10% stake in the world's largest music company in a deal that valued Universal Music at $35 billion. Bloomberg 

Final figure


China’s imports and exports rose 13.2% and 9.9%, respectively, in September compared to the same month in 2019. The numbers signal a remarkable resilience in China’s economy amid a global, pandemic-inflicted economic slowdown. A surge in American soybean and pork imports has helped drive China’s boost in imports as China attempts to meet the terms of January’s phase I trade deal. But even with the uptick, China remains far behind the targets set forth in the deal. Fortune