Wikipedia Deep Dive

Dual circulation

10 min read

In wrestling, there's a move called the body-lock. You wrap your arms around your opponent's torso and squeeze, making it nearly impossible for them to escape or strike back. The tighter you hold, the more control you have. This image—borrowed from the mat—now describes one of the most consequential economic strategies of the twenty-first century.

China wants to body-lock the world.

The Two Circulations

In May 2020, as the coronavirus pandemic shuttered factories and paralyzed global supply chains, China's most powerful political body—the Politburo Standing Committee of the Chinese Communist Party—unveiled a strategy with an oddly clinical name: "dual circulation."

The concept is deceptively simple. Imagine the Chinese economy as having two bloodstreams. The first, called "internal circulation" or "domestic circulation," moves within China's own borders. It represents Chinese consumers buying Chinese goods, Chinese companies developing Chinese technology, and Chinese capital flowing through Chinese markets. The second bloodstream, "external circulation" or "international circulation," connects China to the rest of the world through trade and investment.

For decades, China prioritized the external flow. Factories churned out goods for American big-box stores and European retailers. Growth meant exports. Success meant foreign customers.

Dual circulation flips this hierarchy. Internal circulation now comes first. The strategy aims to make China's economy resilient to outside shocks—trade wars, technology bans, pandemic-induced supply disruptions—while simultaneously making the rest of the world more dependent on China.

That's the body-lock.

The Intellectual Ancestor

To understand dual circulation, you need to know what it replaced: something called the "great international circulation."

This earlier strategy emerged during the era of Deng Xiaoping, the leader who opened China's economy to the world beginning in the late 1970s. An economist named Wang Jian articulated the approach. The logic was straightforward. China had hundreds of millions of poor workers willing to labor for low wages. Western countries had wealthy consumers hungry for cheap goods. Connect these two realities through exports, and both sides benefit.

It worked spectacularly. China became the factory floor of the planet. Hundreds of millions of Chinese citizens climbed out of poverty. The country accumulated vast foreign currency reserves. By some measures, China grew to rival the United States as an economic superpower.

But this success carried vulnerabilities. When Americans stopped buying—as they did during the 2008 financial crisis—Chinese factories fell silent. When the Trump administration imposed tariffs and banned Chinese technology companies from accessing American semiconductors and software, it exposed just how dependent China remained on foreign markets and foreign know-how.

Dual circulation is the response to these vulnerabilities.

The Trigger Points

Three events in rapid succession forced China's hand.

First came the trade war. Beginning in 2018, President Donald Trump imposed escalating tariffs on Chinese goods, arguing that China had cheated its way to prosperity through intellectual property theft, forced technology transfers, and currency manipulation. China retaliated. The conflict never fully resolved.

Second came the technology bans. The U.S. government placed Huawei, China's telecommunications giant, on something called the Entity List—a blacklist that prevents American companies from selling certain products to designated foreign entities without government approval. Suddenly, Huawei couldn't buy the advanced computer chips it needed. Other Chinese companies faced similar restrictions. This demonstrated that America could weaponize its technological leadership.

Third came the pandemic. COVID-19 revealed how fragile globalized supply chains could be. When Chinese factories shut down in early 2020, automakers in Germany couldn't finish cars because they lacked Chinese-made parts. When the virus spread worldwide, everyone competed for the same scarce medical supplies. The lesson was clear: dependence on any single source—or on international trade in general—created risk.

Chinese leaders drew a conclusion. The United States and its allies were turning toward what they called "populism" and "protectionism." The era of seamless globalization was ending. China needed to prepare.

What Dual Circulation Actually Means

Strip away the slogans, and dual circulation has two main components.

The first focuses on Chinese consumers. China has approximately 1.4 billion people. Of these, more than 400 million now qualify as middle-income consumers—people with enough money to buy refrigerators, smartphones, cars, and vacations. This represents a domestic market larger than the entire population of the United States and European Union combined.

The strategy aims to tap this market more fully. If Chinese factories can sell to Chinese consumers instead of relying on foreign buyers, external shocks matter less. Government policy therefore encourages domestic consumption through various means: raising wages, expanding the social safety net so families feel secure enough to spend rather than save, and developing the service economy.

The second component focuses on technology. China remains dependent on foreign-made semiconductors—the tiny chips that power everything from smartphones to missile guidance systems. It relies on foreign software, foreign scientific instruments, and foreign industrial designs. These dependencies give foreign governments leverage.

Dual circulation aims to close these gaps through what China calls "indigenous innovation." During the five-year period from 2016 to 2020, China spent 2.5 percent of its entire gross domestic product on research and development—hundreds of billions of dollars annually flowing into laboratories, universities, and technology startups. The goal is technological self-sufficiency in strategic sectors.

The Spare Wheel Strategy

Chinese economist Yu Yongding offers a useful metaphor for one aspect of this approach: the spare wheel.

Imagine you're driving across a remote desert. Your car has four tires, but you carry a fifth in the trunk—just in case. If a tire blows, you're not stranded. You swap in the spare and keep going.

China wants spare wheels for everything that matters. Can't buy American semiconductors? Develop Chinese alternatives. Cut off from the SWIFT international payment system? Build a Chinese payment network. Denied access to the U.S. dollar for international transactions? Promote the renminbi, China's own currency.

These spare wheels may be inferior to what they replace, at least initially. A domestically made chip might be slower than one from Taiwan Semiconductor Manufacturing Company. But it exists. It works. And its existence means that foreign pressure becomes less effective.

The Body-Lock Strategy

The spare wheel is defensive. The body-lock is offensive.

Here's the logic. The more the world depends on China, the less likely any country will be to join what Chinese strategists call an "anti-China coalition." If German automakers need Chinese batteries for their electric vehicles, Germany will resist American pressure to isolate Beijing. If African nations depend on Chinese infrastructure loans, they'll vote with China at the United Nations. If Wall Street firms profit from Chinese markets, American business will lobby against trade wars.

This isn't merely theoretical. Xi Jinping, the Chinese Communist Party's leader and China's president, spelled it out explicitly. In October 2020, he told the Central Financial and Economic Affairs Commission that China must "tighten international production chains' dependence on China." The goal was "forming powerful countermeasures and deterrent capabilities against foreigners artificially cutting off supplies."

In other words: if you try to cut us off, you'll hurt yourself more than you hurt us.

Some Western analysts summarize this starkly. As political scientist Oriana Skylar Mastro put it, "the idea is that the more reliant the world is on China, the less likely countries will be to join an anti-China coalition."

The Open Question

Chinese leaders insist that dual circulation doesn't mean closing off from the world. Xi has repeatedly emphasized that China remains open to foreign investment and trade. In a November 2020 speech, he explicitly rejected the characterization of dual circulation as "any kind of closed-off domestic circulation."

But critics wonder whether the math works.

Growing domestic consumption requires putting more money in the hands of ordinary Chinese families. Currently, Chinese households receive a smaller share of national income than households in most developed economies. The government and state-owned enterprises retain a larger share. Economist Michael Pettis, who has long studied China's economy, argues that genuinely boosting domestic consumption would require "transferring wealth from the government to private citizens." That's not easy for any government, and it's especially difficult for one built on state control.

There's also a tension between openness and self-reliance. If China truly succeeded in producing everything it needs domestically, why would it remain open to foreign goods that compete with domestic producers? And if China tightened its body-lock on the world—making other nations dependent on Chinese supplies—wouldn't those nations eventually try to diversify away from China, just as China is diversifying away from them?

Some skeptics argue that dual circulation is less a revolutionary new strategy than a repackaging of old aspirations. The New York Times correspondent Chris Buckley noted that "Chinese leaders have promised since at least 2006 to make domestic consumer spending a bigger share of economic activity, reducing reliance on exports and infrastructure building—with mixed success." Perhaps the new slogan simply adds fresh urgency to familiar goals.

Historian Julian Gewirtz suggested that the term itself serves a political function: it forces "focus, mobilization and prioritization" on goals that might otherwise drift.

The Worst-Case Scenario

Chinese economist Yao Yang offered perhaps the most candid assessment. Dual circulation, he said, is about preparing for "the worst-case scenario."

What would that scenario look like? Complete decoupling from the United States. Technology bans expanded to every advanced economy. A new Cold War where countries must choose sides, with China and its allies on one side and America and its allies on the other.

In such a world, China would need to be self-sufficient in food, energy, technology, and finance. Its currency would need to function independently of the dollar. Its technology ecosystem would need to operate without American or European components. Its consumers would need to buy Chinese goods because foreign goods would be unavailable or unaffordable.

Dual circulation aims to make China resilient if this future arrives—while simultaneously making that future less likely by entangling so many countries in the Chinese economy that isolation becomes mutually destructive.

It's an audacious bet. The coming decades will reveal whether it pays off.

The Deeper Pattern

Step back, and dual circulation fits into a larger story about how nations respond to periods of globalization and deglobalization.

The first great era of globalization, from roughly the 1870s to 1914, saw goods, capital, and people flow across borders with relative freedom. Then came world wars, depression, and autarky—nations turning inward, erecting tariff walls, pursuing self-sufficiency.

The second era, beginning after World War II and accelerating dramatically after the Cold War ended, saw globalization resume. Container ships crisscrossed oceans. Multinational corporations built supply chains spanning dozens of countries. The internet connected billions.

Now some argue we're entering a third phase—what some call "slowbalization" or even deglobalization. Nations are rethinking their dependencies. The pandemic exposed vulnerabilities. Geopolitical rivalries make countries wary of trading with potential adversaries.

Dual circulation is China's answer to this moment. Whether it represents wisdom or overreach, whether it leads to a more stable world order or a more fragmented one, history will judge.

What's clear is that one of the world's two largest economies has decided that the era of uncomplicated globalization is over. And that decision, more than any tariff or treaty, may define the economic landscape of the twenty-first century.