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How Geopolitics Shapes Chinese Economic Policy: An Introduction to ‘Asymmetric Decoupling’
NIESR
2024.05.13
Imagine a meeting of the Politburo of the Chinese Communist Party (CCP) sometime in March 2022, just following Russia’s invasion of Ukraine. Essentially every country that prints a reserve currency had just sanctioned the Central Bank of Russia, with the result that Russia lost access to hundreds of billions of dollars’ worth of its foreign exchange assets.
The Russian economy, moreover, was enveloped in a network of sanctions designed to restrict its access to international capital markets, and to constrain its financial sector and many other parts of the economy, including aviation, shipping, defence, aerospace and energy.
While we can’t know for sure, it seems plausible that the CCP would be considering scenarios in which China itself might be on the receiving end of a similar set of coordinated sanctions, with potentially painful consequences for the economy.
Indeed, national security has been a more visible theme in Chinese policymaking for some time. A Central National Security Commission was established by Xi Jinping in 2014, and by 2019 it was clear that the ‘integration of development and security’ was shaping China’s policy framework (Drinhausen and Legarda, 2022). In May 2020, the world was presented with the clearest articulation of this in the form of the ‘Dual Circulation Strategy’, which is best interpreted as a bid to insulate the Chinese economy from increasingly hostile trade policies implemented by the Trump administration. The basic message of the Dual Circulation Strategy, which pictures the Chinese economy as relying both on domestic and external demand, is that the domestic wheel is the ‘mainstay’ (Garcia Herrero, 2021). The strategy, in other words, amounts to a tilt towards self-reliance, building on ‘Made in China 2025’, the bid for Chinese technological self-sufficiency launched in 2015.