Authors: Kung Chan and Xia Ri*
The current era of de-globalization, marked by restructured supply chains and intensifying geopolitical conflicts, has forced major economies inward. As decades of global division of labor fragment, China introduced its “dual circulation” strategic framework to coordinate domestic and international markets, balancing development with security.
While the original policy aimed to pair domestic market cultivation with international openness, its binary structure can be easily exaggerated. In practice, positioning the domestic market as the mainstay is often misread as a push for total self-sufficiency. Conversely, the international cycle requires a predictable, undifferentiated system of rules. Trying to reconcile these opposing logics creates an “either-or” dilemma for local governments and market entities, distorting policy execution.
The negative impacts of this binary orientation are already surfacing in recent macroeconomic data. Actual utilized foreign direct investment in China has faced downward pressure, and the growth rate of new foreign manufacturing projects has slowed as multinational corporations shift capacity to Southeast Asia and Mexico. In 2025, the country’s national industrial capacity utilization rate fell to 74.8%, below the internationally recognized reasonable range, resulting in wasted resources, bloated inventories, and rising debt. The rigid binary framework has begun to restrict high-level openness and undermine stable market expectations.
To rectify these distortions, there is the need to return to the “Open Economy” strategy originally proposed by China’s central leadership. This is not a rejection of dual circulation but a calibration to prioritize internal-external synergy. An open economy recognizes that while every nation maintains a limited, transparent scope of non-open sectors for national security, such as targeted protections in defense, core resources, and food security. The underlying logic must remain an exchange of interests within the global market.
China has already demonstrated significant commitment to this path. Its foreign investment negative list has been continuously shortened, effectively opening the manufacturing sector. The 2025 Catalogue of Industries Encouraged for Foreign Investment expanded to 1,679 items, steering capital toward advanced manufacturing and high-tech industries. In the financial sector, foreign bank and insurance assets have grown steadily, and qualified foreign institutional investors have been granted full access to trade across all bond categories.
For an economy prioritizing long-term stability, an institutionalized order of openness is essential. Stability derived from isolation is fragile and short-lived, leading to technological stagnation and market atrophy. True stability is dynamic and competitive. Amidst global disorder, an open economy acts as an anti-cyclical “safe haven.” When rival economies close their borders and experience contraction, a large-scale economy committed to predictability and openness naturally attracts global capital, technology, and talent, absorbing shifts in global demand to achieve growth against the trend.
When the global order fractures, closed economies wither, while open ones seize the displaced opportunities. Dynamic stability is found by riding the waves of the global system, not otherwise. Ultimately, the formal disadvantages of a rigid dual circulation framework can be overcome by explicitly emphasizing an open economy. This represents both a continuation of China’s historical reform trajectory and a resilient response to global volatility. Transitioning toward this institutional clarity will require complex strategic decisions. By discarding isolationist friction and firmly integrating into the global community, China can utilize openness to fortify its foundations and secure the strategic initiative for sustained growth.
*Xia Ri, Industry Researcher at ANBOUND.
