“Internal circulation” is a new concept within China’s official rhetoric emphasizing reliance upon the domestic economy, and less dependence upon external demand and foreign supply chains. The phrase was discussed in the Politburo’s recent mid-year statement on the economy and may also feature within the 14th Five-Year Plan, China’s medium and long-term economic development strategy for 2021-2025, which will be unveiled early next year.
China’s external environment is increasingly unfavorable for both political and economic engagement, particularly in a world of slowing demand. The challenge in redirecting China’s growth engine domestically and boosting household consumption is increasing household income as a share of the overall economy, while GDP growth is slowing. One implication of the need to boost domestic demand, however, could be a PBOC monetization of debt to facilitate additional fiscal stimulus.
