China’s dual circulation strategy and its impact on European industry: the case of the electric vehicle

Abstract In recent years, the Chinese economy has been hit by several shocks that have heightened the country’s economic security imperative. However, Beijing’s search for greater ‘self-reliance’ is not entirely new. China has often shifted its attention between domestic and global markets in response to the challenges of the time and to capitalize on available opportunities. Yet since the pandemic, the country has taken an increasingly neo-mercantilist stance based on the pursuit of both economic self-reliance and greater economic leverage over foreign countries. This is perhaps best exemplified by the Dual Circulation Strategy (DCS), an attempt to shift the Chinese economy away from unreliable growth sources, namely cheap manufacturing exports and fixed asset investments, and give greater play to the advantages of its industrial overcapacity and domestic demand potential with a new development pattern featuring domestic and international ‘dual circulations’ complementing each other. But how has the strategy fared since its launch? And most importantly, how will it impact Europe, the likely loser of this “China Shock 2.0”? Drawing from China’s recent electric vehicle (EV) boom, this paper aims to dissect the DCS’ main objectives and assess their overall progress against the backdrop of a rapidly deteriorating geopolitical context. The conclusion is that the EU needs to develop its own multilayered industrial strategy in order to compete with China. And in the EV sector, this means a combination of “onshoring” of production, indigenous investment and innovation, and some “technology transfers”.