Riding on 'dual circulation' to revive HK's economy

At the annual sessions of the National People's Congress and Chinese People's Political Consultative Conference National Committee in May, it was decided that China's sustainable economic growth will hinge on a new "dual circulation" development pattern whereby domestic and foreign markets can boost each other, with the domestic market as the mainstay. Since then the idea of a "dual circulation" development pattern has attracted keen interest from around the world as well as Hong Kong society. Some people interpret "domestic market" as the mainland market - and assumed China's economy is "turning left" at the expense of opening up and may even return to the days of a closed market. As always, there is no shortage of misunderstanding and/or misinterpretation of the central government decision, which is designed to combine the domestic market with overseas markets as a complementary duo, with the domestic market as the mainstay. It should not be seen as an either-or situation but rather an adjustment in response to increased risk of overdependence on exports.

In fact, the "domestic market" is not a closed internal circulation, but one closely related to China's vigorous efforts in recent years to expand consumption, enhance high-level opening-up and promote the supply-side structural reform.
As President Xi Jinping said in his speech at the opening ceremony of the second China International Import Expo in November 2019, "China will enhance its domestic consumption to develop the economy". The fundamental role of economic development is to actively build a more robust domestic market, which will propel China's economic development as well as the world's economic growth. According to statistics in 2019, foreign trade contributed 31.9 percent of gross domestic product growth, while domestic consumption contributed 57.8 percent. Clearly domestic consumption has already become the dominant driving force for China's economic growth. It is necessary to maintain strong domestic demand while exploring foreign markets for exports and tapping more suppliers to satisfy growing demand for imported goods, thus globalization remains relevant to the new development pattern of "dual circulation". That is the essence of the "dual circulation" development pattern.

After the third wave of the COVID-19 pandemic hit Hong Kong in mid-July, Financial Secretary Paul Chan Mo-po also put forward the idea of internal and external circulations and explained it in his blog in August. In short, "internal circulation" aims to help resume local socio-economic activities in quarantine mode; while "external circulation" aims to progressively recover cross-boundary business activities and tourism between Hong Kong, the Chinese mainland and Macao. In view of a 9 percent year-on-year decline in economic growth in the second quarter of the year, and the fact that the pandemic cannot be eradicated in a short period of time, it is necessary for Hong Kong society to understand the importance of the "dual circulation" development pattern as soon as possible.

For starters, there won't be "external circulation" without "internal circulation", meaning Hong Kong must contain COVID-19 to allow socio-economic activities to resurrect and flourish again including reopening Hong Kong for visitors from the mainland and Macao. Once the pandemic is under effective control, with strict quarantine of imported cases, restaurants can fully resume dine-in services; movie theaters, beauty salons and sports venues can also reopen. Hong Kong can then proceed with reopening its doors to a larger numbers of visitors to further boost its "internal circulation".

Chief Executive Carrie Lam Cheng Yuet-ngor announced a plan to introduce the Hong Kong version of the popular phone app-based "Health Code" system at a press conference on Aug 21 for the purpose of facilitating easier travel between Hong Kong and the mainland and Macao. She said the Health Code program will be underway once the pandemic is under effective control. Only then will cross-boundary personnel exchanges among the three places be resumed as close to normal as possible, consequently boosting the "external circulation" with recovery of the travel, hospitality and transportation industries.

However, in addition to fighting the coronavirus, Hong Kong also has ill-motivated meddling by foreign forces to contend with. The worst of such interference has to be the US trade war against China that started in 2018 and a series of sanctions, including revoking Hong Kong's special trade status with the United States. Those sanctions have in fact seriously impacted Hong Kong, a highly open and outward economy. Meanwhile, amid the transition to the pandemic-induced "new normal", many developed economies have started working on reviving their manufacturing industries to reduce imports, a process also known as "reindustrialization". This trend will inevitably lead to a reshuffle of the existing global labor-distribution pattern. It does not only threaten China's role as the "world factory" in the value chain but also affects Hong Kong's role and function as an entrepot heavily dependent on goods and service trade between the mainland and overseas markets. Therefore, in terms of investment in fixed assets and export of services as well as the total import and export volume and container throughput, Hong Kong has seen its figures fall continuously in recent years.

As such, the SAR government needs to figure out reliable ways to maintain its role in the global business network through its version of the "dual circulation" growth pattern, after putting COVID-19 under control of course. To accomplish this feat we need to appreciate the ingenuity of the "dual circulation" strategy from a broad perspective and determine how Hong Kong should integrate its own "dual circulation" with the nation's, with the global economic landscape in mind.

As mentioned earlier, boosting domestic demand is the core strength of internal circulation. The infrastructure development in the Guangdong-Hong Kong-Macao Greater Bay Area allows Hong Kong to fully tap into the massive domestic market that is the whole mainland. Banking, foreign trade and foreign investment have always been crucial to the mainland in sustaining economic development. And these three sectors are highly developed in Hong Kong, which has long been an international financial center thriving in channeling foreign investment into the mainland and serving corporate as well as individual customers from the north. Hong Kong is also a major trade and shipping hub in the Asia-Pacific region.
Hong Kong should seize the opportunity to bring its high-end services into full play and integrate them into the country's domestic circulation.

At the same time, as China rolls out its "dual circulation" strategy, it is necessary to remain open to the outside world and let its huge market achieve its full potential, attracting foreign investment while maintaining the integrity of its industrial chains and safeguarding the process of globalization. In this process, Hong Kong can also make use of its expertise as an international financial center and professional service provider for the mainland and overseas markets. Hong Kong will remain the leading offshore renminbi clearing center in the process of promoting the internationalization of the renminbi. In addition, by actively participating in the construction of the Belt and Road Initiative in the future, Hong Kong will not only profit from business opportunities but also contribute to globalization, in cooperation with the mainland on all fronts of the service trade.

In short, the "dual circulation" development pattern should not be viewed as a temporary solution to Hong Kong's problems resulting from the COVID-19 pandemic, but rather a long-term strategy to integrate its own development into the nation's overall development strategy.

The views do not necessarily reflect those of China Daily.