Jia Genliang 贾跟良:
an Economist for China’s New Era?
A review by Lucas Erlbacher
Jia Genliang 贾跟良, a tenured professor from the School of Economics at Renmin University of China, represents one of China’s most consequential economist of the last decade. His theoretical framework, New Listian Economics, provides a compelling analytical framework to understand China’s current developmental challenges as well as the global economic structure. In addition, his development agenda, Strategy of the Great Domestic Circulation, not only echoes the country’s present policy direction, but also offers a comprehensive and coherent policy blueprint guiding China’s policy makers. In that sense, Jia to might well be an economist from and for China’s New (Development) Era.
1. The Genesis of a Heterodox Economist
As for most scholars born in the 1960s in the People’s Republic of China, Jia Genliang’s intellectual life has been shaped by the successive exposure during his formative years to, first, the ideological radicality of the Maoist period and, second, the fulgurant ideological, economic as well as social transformations undergone since the beginning of the Reform-and-Opening-up period in the post-Mao era.
Crucially, the lived experience of the turmoil during the cultural revolution, markedly the ‘irrational fanaticism’ of the Red Guards, have led Jia to reject early on the rationality infused neoclassical economic framework (Ma & Jia, 2011, pp. 156–158). Up until this day much of his academic work is driven by the will to propose an alternative to the neoclassical economic mainstream. In that context, Jia has notably played a pivotal role in introducing and propagating Evolutionary Economics ideas in China, in particular by organizing in 2010 the country’s first Annual Conference of Chinese Evolutionary Economics 中国演化经济学年会. Moreover, the period of ideological liberation, which characterized the first decades of China’s reform era, has spurred Jia’s interest for philosophy and history of thought. This interest has subsequently fueled not only his research on the history of economic thought but also his effort to conceptualize a new economic paradigm. Lastly, Jia shares with most of his peers an overarching determination to further advance China’s national development. Accordingly, the majority of his work aims at proposing policy solutions to the country’s current development challenges. These intellectual pillars – the opposition to the Neoclassical mainstream and Heterodox identity, the interest for economic ideology as well as the aim to advance China’s development – have not only structured Jia’s prolific academic life but also later his effort to propose an alternative development paradigm for China.
Figure 1: Jia Genliang’s intellectual journey
Note: Above word clouds have been generated by gathering all key words attributed on CNKI 知网 to Jia Genliang’s articles published between 1995 and June 2021. The key words were, first, translated to English and then homogenized, so as to combine synonyms. The different periods have been determined based both on the relative frequency of key words, as well as on a qualitative assessment of the thematic changes found throughout Jia’s bibliography.
From Evolutionary Economics to New-Listian Economics
Jia’s early scholarly work stands out through its diversity both in terms of studied subjects and currents of economic thought; ranging from the lessons of the German Historical School of Economics for China’s autonomous innovation (Jia & Huang, 2006) or the influence of Confucianism on the development East Asia’s innovation systems (Jia, 2001) to the theoretical contribution of Post-Keynesian monetary theory (Li & Jia, 2012) and Modern Monetary Theory.
Jia Genliang’s academic journey can be divided in four different phases (see Figure 1): First, a period of intellectual bourgeoning during the late 1990s, which saw the emergence of Jia’s core research focus, in particular an interest in innovation systems and theories of innovation (e.g. Schumpeterian Economics), as well as more generally in Heterodox Economic theories (e.g. Institutional Economics), and which lay the groundwork for his later work. Second, during the 2000s Jia devoted considerable amount of his attention to the study of Evolutionary Economics (see Figure 1: Evolutionary Economics and History of Economic Thought, 2002 – 2009). He markedly published several papers presenting to a Chinese audience the work of evolutionary scholars, as well as their intellectual roots, such as the Austrian School. Arguably, the appeal of Evolutionary Economics for Jia Genliang has been two-fold: first, it offers a theoretical framework to understand the fulgurant and profound transformations undergone by China since the beginning of the reform era and, second, it presents a counter-paradigm to the Neoclassic mainstream and the Neoliberal worldview (see Jia & Zhao, 2006), which at that time had gained considerable in influence within the Chinese academic sphere (Cohn, 2017). In addition, during this time Jia also devoted a considerable amount of his research to the broader field of History of Economic Thought, in particular the intellectual struggle between the Neoclassic Mainstream and Heterodox Economics. In this context, he notably wrote a journal article on the relevance of the American School of Economics for China’s economic development, especially the importance laid on fostering a domestic manufacturing sector, the strategic usage of trade protectionism and the preeminent role of state intervention (Jia & Shu, 2008). The American School had a major influence on Jia Genliang’s subsequent intellectual career. Indeed, the 2010s saw Jia develop his own theorical framework on economic development – New Listian Economics – drawing heavily on the teachings of one the most prominent representatives of the American School, the German-American economist Friedrich List (see Figure 1: Genesis of the New Listian Economics paradigm and the Great Domestic Circulation strategy, 2010 – 2017). The New Listian framework brought together different aspects of Jia’s prior research: the intellectual attraction for Heterodox theories, most prominently Evolutionary Economics, the search for an alternative to Neoclassic Economics, the critique against China’s export-led model of economic development and more generally Neoliberal tenets, such as the free trade and market dogma, and lastly his interest in innovation and technological change. At the same time, building on his theoretical framework, Jia also proposed a set of policies aimed at addressing the unheeded challenges of China’s economic development, in particular the lack of domestic demand, regional developmental disparities as well as the lagging technological upgrading. Importantly, he bundled these different policies into a comprehensive and coherent development agenda: the strategy of Great Domestic Circulation. Over the years since Jia has continued to develop and expand his New Listian framework and Great Domestic Circulation strategy (see Figure 1: Maturing of the Great Domestic Circulation strategy, 2018 – 2021). In recent papers he markedly emphasized the importance of a sovereign monetary policy for China’s and other developing countries’ development. In this context, Jia played a significant role in the diffusion of Modern Monetary Theory (MMT) within Chinese academia. More recently, he also published articles discussion the role of state-owned enterprises for China’s innovation system (Jia, 2023).
In sum, Jia’s bibliography reflects not only the author’s wide-ranging academic curiosity, but also his persistent commitment to his intellectual pillars – the diffusion of Heterodox Economics and advancement of China’s economic development. Importantly, his work is in many ways representative of far-reaching evolutions within the Chinese Economics field. Indeed, the critique of the Mainstream Neoclassic paradigm and search for a ‘Chinese’ alternative theoretical framework, tailored to the specific context of contemporary China, has gained in traction over the past decade. Other economists have sought to establish their own framework: Lin Yifu 林毅夫 and New Structural Economics新结构经济学 or Teng Tai 滕泰 and New Supply-side Economics 新供给主义经济学. Similarly, the critique of China’s export-driven growth model has become widespread, in particular due to the evident manifestation of its ailments, such as regional and social inequalities, environmental pollution as well as lagging technological upgrading. Nonetheless, the significance of Jia Genliang’s research for country’s current context as well as the precursive character of his development agenda make him of one China’s most consequential economists of the last decade.
The following sections will center on presenting Jia Genliang’s research since the 2010s. First, the influence of Friedrich List on Jia’s will be discussed (see Section 2: Friedrich List in Beijing). Building on that, the main propositions of his theoretical framework, New Listian Economics (see Section 3: The Chinese New-Listian Economics School), and of his development agenda, Great Domestic Circulation strategy (see Section 4: The Great Domestic Circulation strategy), will be presented. Lastly, the relevance for will be briefly touched upon Jia Genliang’s relevance for understanding China current economic policies (see Section 5: An Economist for China’s new era?).
2. Friedrich List in Beijing
Economic nationalism, productive powers, and pragmatism
The influence of Friedrich List on Jia Genliang’s work can be summarized as follows: (a) economic nationalism (b) the state acting as the protector of the national productive powers (c) a pragmatic attitude towards protectionism considering a country’s development stage.
Firstly, in opposition to Adam Smith’s focus on the self-interest of individuals, Friedrich List takes the nation state as his analytical basis and, hence, focuses on the promotion of national interests (Levi-Faur, 1997a, pp. 369–370). Jia shares this emphasis of national interests. For instance, his rejection of Neoliberalism is in particular grounded in the latter’s disregard for national interests. Conversely, in the context of establishing his New Listian Economic paradigm, he underlined the necessity of founding a Chinese school of economic nationalism (Jia & Huang, 2006).
Secondly, again opposing Smith, List’s argues that “[…] the power of producing wealth [i.e a nations productive powers] is […] infinitely more important than wealth.” (List, 1909, p. 106). Therefore, according to List, a nation state’s preeminent task is the strengthening of its productive powers, which include both natural resources (“capital of nature”), capital inputs (“capital of matter”) as well as human capital (“capital of mind”) (Levi-Faur, 1997b, p. 157). To this end a nation state should in particular implement protectionist measures aimed at enabling the emergence of strategic industries, i.e infant industries. Echoing List’s focus on productive powers, Jia seeks to provide a roadmap for the upgrading of China’s industrial capabilities by increasing its innovative capabilities. In addition, by taking in account different aspects contributing to innovative capabilities, such as China’s physical infrastructure, its institutional environment, as well as the education and training of its workforce, Jia mirrors List’s broad understanding of productive powers.
Lastly, List only advised protectionist measures for countries having attained a minimum of economic development (Cardoso, 2018, p. 53). Indeed, he argued that in early stages developing countries should integrate with the world economy and pursue a free trade policy agenda so as to modernize agriculture and “[…] instilling habits of industry into their subjects […] [as well as] inducing their landowners and nobles to feel an interest in industry […]” (List, 1909, p. 93). Later having reached “the threshold of industrialization” (Garbe, 1977, p. 254) countries should opt for a partial seclusion by instating strategic protective measures. Finally, as a developed economy a free trade agenda should be reinstated. List’s recommendations regarding protectionism are, hence, rooted in a pragmatic differentiation of a country’s development stage and targeted at building its productive powers (Daastøl, 2016, p. 95). In line with List’s argumentation, Jia preconized a differentiated approach to participating in globalized value chains depending on a country’s development (Jia & Shen, 2016, p. 53). Likewise, Jia’s call for a Listian revolution, markedly the implementation of protectionist measures to accelerate a shift towards a development model centered on China’s domestic market, is conditioned on his assessment that China’s export-led growth model is hindering the country’s further economic upgrading – in the words the of List – the development of the country’s productive powers.
Is China following a Listian development path?
For Jia Genliang the relevance of Friedrich List’s work, notably the aforementioned focus on national interests, the role of the state as protector of national productive powers as well as the pragmatic use of protectionism, is further heightened by the anti-listian nature of the policies pursued by China during the post-Mao period. While scholars, such as Shaun Breslin, have emphasized the similarities between List’s economic theory and China’s economic policies, markedly the “[…] state-led engagement with globalization with a ‘nationalist tinge’ […]” (Breslin, 2011, p. 1329), Jia argues that its development strategy differs considerably from traditional ‘Listian’ countries, such as the US or Japan (Jia, 2015a).
Firstly, contrary to the US’ simultaneous emphasis on trade protectionism and the unification of its internal market, China opted since the Reform era for an export-led growth model and neglected the unification of its domestic market. Crucially, in accordance with List’s theory of different development stages, Jia argues that China’s current pursuit of an export-led growth model represents an impediment to the country’s economic upgrade, as in the current international division of labor China finds itself locked into the lower-end of the global value chains. In addition, the emergence of export hubs in China’s coastal regions have not only greatly participated in the development imbalance between coastal and inland provinces, but also obstructed the unification of China’s domestic market.
Secondly, while the US, Japan and Germany implemented stringent restrictions on inward foreign direct investments (IFDI), China instead actively sought to attract them by notably offering foreign investors tax incentives. According to Jia, the large inflow of foreign direct investments into mostly processing trade sectors poses a further threat to economic upgrading, as key sectors are hereby falling into the control of foreign multinational enterprises and the latter are only reluctantly transferring technology and knowledge (Jia, 2018b). Moreover, Jia further argues that the inflow of FDI into China has contributed to the fragmentation of China’s domestic market due the unequal distribution of FDIs – mostly channeled into coastal export hubs – but also by fostering competition between different localities (provinces, municipalities or counties) and thus aggravating local protectionism.
For these reasons, Jia Genliang considers that a Listian revolution within the country’s economic thinking and policy agenda is essential for securing China’s future development (see Jia, 2015a, Chapter 12).
3. The Chinese New-Listian Economics School
In view of the problems arising from China’s export-led growth model and the over-reliance on IFDI, Jia Genliang has since the 2008 global financial crisis sought to contribute to the intellectual rediscovery of Friedrich List’s work in the Chinese academic discourse, as well as to translate List’s major insights to China’s current development environment (Jia, 2015c). In that context, he called for the formation of a New-Listian Economics School 中国新李斯特经济学. As the original Chinese name includes the term ‘中国’ (China) – in opposition to the English translation put forward by Jia, which makes no reference to China – and reflecting the school’s focus on specifically addressing China’s development challenges, Jia’s thought of school will hereof be referred to as the Chinese New-Listian Economics School.
As its name indicates, Jia’s Chinese New-Listian framework seeks to both build upon and broaden List’s legacy as well as the work of what Ben Selwyn calls “[Friedrich List’s] Modern-Day Followers” or “Neo-Listians” (Selwyn, 2009) (Jia, 2012e). Neo-Listians, a rarely used label, refers a loose group of scholars, such as Robert Wade, Ha-Joon Chang and Alice Amsden, who oppose the neoclassical free trade paradigm and argue for a more statist approach to development by building onto Friedrich List’s work. In particular, Ha-Joon Chang refutes the free trade paradigm by showing that developed countries, notably the UK and US, have made use of protectionist measures to enable their burgeoning industry to develop and thus closely followed List’s concept of infant industry protection (Chang, 2003). Moreover, Wade sought to demonstrate using the developmental experience of East Asian countries, such as Japan, Taiwan and South Korea, the importance of the state’s role in shaping countries development path (R. Wade, 1990). While Jia Genliang fully concurs with this critique of the neoclassical free trade paradigm and the significance of the state’s role, he further argues that Neo-Listian authors have failed to incorporate in their analytical framework two major contemporary shifts in the global economy: the emergence of a new international division of labor centered around global corporations and the hegemony of the US Dollar.
Emergence of global value chains and global corporations
Indeed, the emergence since the 1980s of an international division of labor centered on the international fragmentation of value chains has profoundly reshaped the global economy, notably leading to the emergence of supply-chain trade and formation of regional production blocks (Baldwin & Lopez-Gonzalez, 2015, pp. 1695–1697). Significantly, companies from developed countries have offshored low value-added and labor-intensive production processes to developing countries, especially China, while keeping high-value-added and technology-intensive processes.
This global fragmentation of a significant portion of the production processes implies a crucial difference from the traditional Listian framework. Whereas List regarded the promotion of the manufacturing sector as key to national development, markedly because compared to the agricultural sector manufacturing was sought to foster a country’s productive power (List, 1909, pp. 147–154), Jia points out that List’s analysis is based on the premise that value chains are largely confined to national borders, and, hence, that the promotion of the manufacturing sector would ensure “[…] high quality economic activities with a high innovation rate, a high value-added, high wages and high employment […]” (Jia, 2015b, p. 11 transl. by author). However, the global fragmentation of value chains implies that a country at the lower-end of an international production network is not only predominantly engaging in low value-added production processes with largely decreasing marginal returns but also prevented from controlling crucial high-end technology and accumulating the necessary human capital associated with high value-added processes, and thus unable to realize economic upgrading (Ma & Jia, 2011, p. 159).
Expanding on the Prebisch-Singer Thesis,1 Jia and Shen (2016) assert that under the twin pressure of fragmenting value chains and expanding global corporations the terms of trade of countries at the low-end of value chains are deteriorating over time, as the price of manufactured products at the low-end of value chains seems to have been declining over-time, especially in comparison to high value-added capital goods and core technologies (Jia & Shen, 2016). This implies that for economies at the lower-end of global value chains the process of economic upgrading tends to become more arduous and that these face the threat of seeing themselves trapped within the lower-end of global value chains.
In fact, globalized value chains tend to perpetuate a global center-periphery structure with, one the one side, developed countries dominating the high-end segments and, on the other, developing countries engaging in low-end production processes. In fact, as Baldwin and Lopez Gonzalez (2015) explain, the fragmentation of production has led to a technology asymmetry between, on the one side, “headquarter economies” in developed countries, which control the technology and are able to organize production networks and, on the other side, labor providing “factory economies” (Baldwin & Lopez-Gonzalez, 2015, p. 1707). Making matters worse, developing countries are faced with an intensive competition within the low-end segments of value chains, due to limited technological production requirements and low market entry barriers. This translates itself in persistent race to the bottom, in which developing countries underbid each other. In addition, developing countries, including China, tend to import capital goods from developed countries. While these allow for increases in productivity, they eventually aggravate the downwards push on prices (Jia, 2012d, p. 81). In summary, developing countries find themselves to be entangled in what Jia terms “a melee in the low end, having lost control of the high end” ‘低端混战，高端失守’ (Jia & Shen, 2016, p. 49).
Within these international value chains, global corporation have positioned themselves at the commanding core from where they are able to control the production of key products and act as system integrators (in Chinese 系统整合者) by “[…] moving selectively up- and downstream in the marketplace […]” (Hobday et al., 2005, p. 1109). As a result, they have been able to “[…] co-ordinate supply networks, and continually optimize [their] position within the value stream of an industry.” (ibid, 1138). Importantly, in reaction to the pressure exerted by the global corporations along the value chains, lower-segments of the value chain have also consolidated around a few lower-level system integrators and in this way reproduced the asymmetric power pattern all along the globalized value chain. This represents a tremendous impediment to developing countries’ economic upgrading, as they are not only confronted with the global corporation’s wide-reaching influence within the core segments of the value chains, but also need to challenge powerful system integrators – industry leaders – at every segment of the value chain (Jia & Shen, 2016, pp. 50–51).
In order to successfully achieve economic upgrading, developing countries should, according to Jia’s New Listian agenda, focus on developing high-end, technology-intensive production capabilities rather than specializing in low-end, labor-intensive processes, as is advocated by the neoclassical theory of comparative advantage. In that context, both protectionist measures and policies fostering national innovation capabilities should be used to enable a transition towards high value-added production processes.
The Hegemony of the US Dollar: A Modern Monetary Theory approach
Besides the emergence of international value chains, Jia Genliang argues that transformation of the US dollar’s global dominance following the collapse of the Bretton Woods System in 1970s represent the second major shift currently structuring the global economy.
Under the Breton Woods System currencies were credited with an intrinsic value, as these were pegged to the dollar, which itself was fixed to gold. This is similar to the Gold Standard System beforehand, in which the value of currencies was fixed to a certain amount of gold. Since the fall of the Bretton Woods System, however, currencies have had no intrinsic value and have conventionally been termed fiat currencies, i.e government-issued currencies not backed by any commodity. In contrast to the notion of fiat currency, Modern Monetary Theory (MMT) economists, such as L. Randall Wray, have put forward the alternative concept of sovereign currencies, which are issued by a national government, used to collect taxes as well as to issue government debt,2 and are not fixed to any foreign currency or commodity (Wray, 2019, p. 5). Crucially, MMT theorists argues that countries with sovereign currencies do not face any fiscal budget constraint, as they are able to finance their fiscal expenditure through issuing new currencies.3 Correspondingly, such countries can always meet their obligations issued in their own domestic currency by issuing new currencies. In the context of international trade, MMT scholars contend, contrary to the conventional view, that “imports represent a real benefit [in terms of material well-being] while exports are a real cost.” (Mitchell, 2019), as imports constitute an inflow of real economic resources and outflow of currency, yet exports are an outflow of real economic resources and inflow of currency.
Based on this theoretical background, Jia Genliang asserts that the development logic of countries was significantly different under the dollar-pegged Bretton Woods System than since its collapse, the present period (Jia, 2021a). On the one hand, under the Bretton Woods System, fiscal spending was constraint by the reserves of dollars and ultimately of gold: in order to keep the fixed exchange rate to the dollar, countries had to be able to match an increase in their domestic currency caused by expansive fiscal spending with dollar or gold reserves. This means that due to the constraint posed by dollar reserves and given that international trade was largely settled in dollars, countries running a trade surplus increased their dollar reserves and subsequently their fiscal expenditure space. Conversely, countries running a trade deficit saw their dollar reserves decrease, which would not only be decreasing their fiscal expenditure space but also compel their central bank to raise interests in order to attract dollar investments, which subsequently would cause an economic slowdown. Consequently, under the Bretton Woods System running a trade surplus, Jia contends, could be regarded as being a growth motor.
On the other hand, since the collapse of the Bretton Woods System, national governments possessing a sovereign currency do not face a budget constraint in their fiscal expenditures. Consequently, the fiscal spending of countries with a sovereign currency is not constraint by its dollar reserves and thus the importance of running a trade surplus as a channel to increase dollar reserves is diminished. Moreover, while under the Bretton Woods System, running a fiscal deficit would lead to a ‘squeezing out’ of private investment – in order to compensate fiscal deficit, governments had to absorb private capital by issuing government debt -, sovereign currency governments are now able to finance fiscal deficit directly through currency emissions. In this case, fiscal deficit generates additional income for private agents. Lastly, in the current international monetary system, the US dollar has retained a central position by acting as the primary international reserve currency. As, on the one hand, countries around the world continuously demand US dollars, and, on the other hand, the country’s authorities are not anymore compelled to maintain a gold-dollar-peg, the US is able to finance its trade deficit by issuing new currencies. These two elements constitute the basis of the US dollar’s hegemony.
According to Jia, the shift away from fixed exchanged parity system implies that the effect of running a trade surplus or trade deficit on a country’s development path depends nowadays on the currency used for international trade settlement (Jia, 2021a, pp. 23–24). For countries predominantly using their own domestic currency to settle international trade payments, running a trade deficit represents a real gain for the economy as a whole, as the country can finance these imports by simply issuing new currencies through fiscal deficit, and gains real economic resources, while its counterpart holds assets denominated in the importing country’s currency, on which the latter can’t default. On the other hand, countries using predominantly foreign currency to settle international trade payments, are facing aggregate losses both when running a trade surplus and trade deficit. In the case of trade surplus, the country obtains assets denominated in the counterpart’s currency, while losing real economic resources. In the case of a trade deficit, the country needs to provide foreign currencies and is thus exposed to the risk of running out of foreign reserves.
In the context of China, Jia explains that the country’s export-led growth strategy has led to the outflow of real economic resources. Moreover, the dollars accumulated through the large-scale trade surplus have had only a limited positive effect on the country’s development, as these have been invested to a substantial extend into US treasury bonds with low interests. In addition, since the revocation of the US dollar’s peg to gold, which formed the ceiling of the Breton Woods System, the US dollar has continuously depreciated. Consequently, the Chinese domestic economy has, according to Jia, not only been deprived of real economic resources, but the foreign assets gained through exports have been of low value-added and depreciating.
4. The Great Domestic Circulation strategy
Throughout his work Jia Genliang has sought to translate his theoretical insights to China’s context, as well as to propose both concrete economic policies to address the country’s existing economic challenges. He notably proposed a development agenda, which in line with Chinese political tradition, he summarized into a short twenty-four-character slogan: “protect high-end [value chains], domestic market, smart environment protection [i.e green technology], national leadership, sovereign credit, and South-South growth”– in Chinese: ‘二十四字纲领: 高端保护、内需市场、智能环保、国家领导、主权信贷、南南成长’ (Jia, 2020f, transl. by author).4 With the launch by China’s central leadership of the country’s new development strategy “Dual Circulation” 双循环, which in many aspects seems to echo Jia Genliang’s work, and the timely publication the same year of Jia’s book “The Great Domestic Circulation: Economic development strategy and policy choices” ‘国内大循环：经济发展战略与政策选择’ (Jia, 2020c), Jia has not only gained in public notoriety but his work has become crucial to understanding China’s development trajectory. The following section seeks to provide a brief overview of the main policy suggestion associated with Jia’s Great Domestic Circulation strategy.
Towards domestic consumption- and innovation-driven development
Since 2010 Jia has called on the Chinese leadership to shift away from the prevalent export-led growth model to a more inward-focused, consumption-based growth strategy. The author labeled this new development paradigm as the Economic Development Strategy of a Great Domestic Circulation 国内大循环经济发展战略 (transl. by author), in opposition to the then widely popularized theory of the Great International Circulation 国际大循环理论 (Jia, 2010a).
Great International Circulation 国际大循环理论
The theory of the Great International Circulation was put forward by Wang Jian 王建，then Secretary General of the China Society of Macroeconomics 中国宏观经济学会, in 1987 as a broad macroeconomic development strategy for China. It received early on the endorsement of Deng Xiaoping as well as Zhao Ziyang and became China’s de-facto macroeconomic strategy for the last decades. In short, it advocated for economic development through expanding simultaneously exports, including both processing and ordinary trade, and imports of raw materials, technology, management methods and capital (Fan & Zhu, 1994, p. 84). This is captured in the slogan “two heads outwards, big imports big exports” [transl. by author], in Chinese ‘两头在外，大进大出’. As the Chinese Economist Yu Yongding 余永定 explains, the initial purpose of the strategy was to increase China’s foreign-currency reserves through growing exports, in order to finance the import of industrial equipment and technology, which were necessary for the modernization of China’s economy (Yu, 2021a).
Stimulating China’s domestic demand and integrating its domestic market
Crucially, as in Jia’s view “[…] the material, cultural and consumption level of a country’s citizen is the engine of economic growth […]“ (Jia, 2021a, p. 25, transl. by author), China should stimulate domestic demand and thereby consumptionby deviating from the longstanding pursuit of low labor costs for export industries and investing into its human capital, in particular in education and health care. Jia points out that this is all the more important as depressed wages hamper not only domestic demand but also private investments in education, which necessitate a high income (Jia, 2020e). More generally, keeping wages low to strengthen the competitivity of the export sector aggravates a country’s dependence on external demand, which in turn further entrenches the policy of depressing wages.
In addition, China’s export-led strategy represents, according to Jia, a driving factor of the inequalities between eastern coastal and western inland regions, as well as between rural and urban areas. The emergence of export manufacturing centers in China’s coastal provinces have worsen the country’s east-west divide by further exacerbating an economic pattern in which western provinces provide natural resources, central provinces supply a cheap and abundant labor force and eastern-coastal regions produce for international export (Jia, 2020a, p. 105). Contrary to this, Jia asserts that “the integration of the domestic market”‘国内经济一体化’ should be at the center of China’s new development paradigm (Jia, 2012c, 2013a).5
At the beginning of the previous decade,6 Jia explained that this would entail promoting domestic trade by building infrastructure and reducing associated domestic trade barriers, notably abolish road tolls and bridge fees, as well as various commercial ‘hidden rules’. Moreover, in line with Ragnar Nurkse’s argument that the market size of underdeveloped countries is small, as these are “ […] too poor to provide markets for local industries.” (Reinert et al., 2009, p. 113), and, hence, that “[…] economic growth in underdeveloped countries must largely take the form of increased production for domestic markets.“ (ibid, p. 115), Jia contends that in order to expand its domestic demand China needs to further develop national industrial value chains centered on its own internal market. Especially, the promotion of independent innovative and productive capabilities for capital goods is deemed crucial, since these not only raise the productivity of other sectors, but also expand domestic demand for both capital and consumption goods in the long-term (Jia, 2012b). Correspondingly, Jia opposed the government’s strategy of expanding imports ‘扩大进口战略’ – implemented in 2011 as a response to China’s ever growing trade surplus towards the US – and advocated for an import substitution policy concentrated on fostering the production and innovation of high-end capital goods (Jia, 2012d, p. 82). Lastly, in order to bridge the country’s east-west divide, a portion of the industries located in coastal regions should be transferred to south-western and south-central provinces.7 Importantly, Jia does not favor a vertical division of labor in which western provinces are situated at the low-end of domestic value chain, while coastal industries upgrade to higher segments, since this would aggravate regional inequalities. Instead, China should pursue a strategy of regional specialization directed at promoting high value-added sectors as well as securing core technologies and key production inputs across all provinces (Jia, 2020a, pp. 108–112).
Fostering innovation in core technologies and capturing high-end segments of value chains
While arguing that “[…] the source of economic growth generally can’t come from external demand, but only from the broader development of the domestic market.”, Jia underlines that “[…] robust growth of domestic demand must be guaranteed by innovation in core technologies […]” (Jia, 2021a, p. 25, transl. by author). This view is in particular based on the Evolutionary Economics’ understanding of economic development as an evolutionary process – dynamic and interdependent evolution of the employed technologies, organization of firms, structure of industries and economic institutions – in which “[…] the driving force of successful catch-up is innovation […]” (Nelson, 2008, p. 16), as well as on Joseph Schumpeter’s insight that “[…] within any particular era there is a relatively small set of technologies and industries that are driving economic growth.“ (ibid, p.15). Accordingly, the key factor for China’s economic upgrading is, according to Jia, the enhancement of its national innovative capabilities in regard to strategic technologies.
Taking a long-term perspective, Jia recognized that the ongoing third industrial revolution, more specifically green-tech and renewable energies, AI/Smartification technologies, as well as nano-technologies and advanced materials (Jia, 2013b, pp. 46–47), represented both a challenge to China’s current economic model, as well as an opportunity for the upgrading of its economy. Notably the diffusion of AI-technology in industrial sectors, is likely to not only disrupt China’s labor-intensive industries, but also lead to a relocation of manufacturing industries to developed countries, and as a result fundamentally call into question China’s labor-intensive economic model. Consequently, China should concentrate on, the development of new smart manufacturing technologies and production capabilities. To this end, it should in particular draw on the country’s large pool of qualified engineers (Jia, 2016b, p. 105), support advanced manufacturing SME’s, foster synergies between the latter and large enterprises (Jia & Li, 2021, pp. 36–38) as well promote the modernization of its traditional industries.
More generally, the country should focus on capturing the high-end segment of the value chains by implementing selective protectionist measures directed at fostering the emergence of high-end, technology-intensive industries, as well as specifically promoting emerging and strategic technologies. On the other hand, economic upgrading should also be promoted through an active downsizing of low-end manufacturing industries. Jia for example proposed in 2012 to diminish or even abolish export tax refunds,8 which at the time benefited greatly foreign companies active in processing trade (Jia, 2012b, p. 45).
In that context, Jia warned that should China continue its export-oriented growth strategy it would remain locked within the low-end of global value chain and caught in the trap of the international division of labor ‘国际分工陷阱’ (Jia & Shen, 2014). Jia and Shen (2014) observe that, albeit being situated in technology intensive sectors, Chinese companies perform largely low value-added processes, such as the assembly of technology products, meanwhile relying heavily on high-end technology inputs from developed countries. Crucially, through its participation in global value chains, China has been unable to substantially develop its own domestic upstream and downstream industries, as well as complementary productive service sectors, i.e “[…] intermediate inputs to further production activities […] [that] typically have a high information content […]“ (OECD, 2003). Indeed, the expansion of processing trade and the import of capital goods from developed countries have restricted the growth of associated industrial services, while foreign companies have tended dominated these industrial service markets in China (Jia et al., 2011). In consequence, Jia contends that the abandonment of China’s export-driven growth model represents an essential prerequisite for the upgrading of its economy.
Lastly, proving his astute understanding of international politics, Jia claimed in 2010 that the continued reliance on export-led growth also makes China vulnerable to trade protectionism by developed countries – first and foremost the US -, which he deemed inevitable in the wake of the 2008-2009 crisis. On a general basis, he predicted that this could eventually lead to a process of partial deglobalization (Jia, 2013a).
From trade surplus to balanced trade to slight trade deficit
In addition, Jia contends that the gigantic exports surplus generated through China’s export-centered growth model represent an impediment to its development, as the country’s foreign reserves – mainly US dollars – have been invested in US government bonds,9 which are both of low-interest and continuously depreciating. He, thus, advocates for a shift towards a strategy of balanced trade ‘贸易平衡战略’ [transl. by author], in the context of which China’s export surplus is substituted by increasing fiscal spending (Jia, 2021a, p. 24). In line with the transformations of China’s economy towards a domestic demand-led growth model, this could participate in increasing China’s domestic income, in addition to finance investments into education and health services, as well as the development of key technologies.
Simultaneously, China should seek to promote the internationalization of its domestic currency, so as to diminish its dependence on the dollar and strengthen its own fiscal policy space. Critically, the internationalizing of the RMB should be fostered through trade expansion rather than financial liberalization. Indeed, Jia and He (2019) explain – combining literature on the global currency hierarchy10 and Minsky’s financial instability thesis11 – that financial liberalization in developing countries, situated at the bottom of the global currency hierarchy, not only causes a significant increase in financial instability, due the creation of a speculative bubble following to vast inflows of foreign capital and their subsequent sudden outflow, but also constrains the country’s fiscal space. In fact, in the advent of a crisis developing countries are compelled to stabilize market expectations through conservative fiscal policy, i.e fiscal austerity (Jia & He, 2019). The authors further develop their standpoint by comparing the development experience of Germany and Japan: while Germany only liberalized its capital account after the internationalization of its currency, Japan sought to advance the liberalization of the Yen through financial liberalization, markedly encouraging greater entanglement between its domestic and foreign financial institutions. However, despite ranking as the third largest economy, Japan’s currency lags behind the Euro and UK’s pound.12 In the context of internationalizing the RMB through trade, Jia and He affirm that:
Finally, building on the internationalization of the RMB, the country should in a second phase transition to a strategy of slight trade deficit [transl. by author] ‘略有逆差的对外贸易新战略’. Crucially, drawing the lessons from the detrimental experiences of the US and Western European countries, the trade deficit should, however, be reined in, so as to avoid deindustrialization and over-financialization of the Chinese economy. Indeed, referring to William Boone Bonvillian’s metaphor of the manufacturing sector seen as an hourglass – manufacturing lies at the center of a much larger production system with upstream R&D activities, extraction of resources, production of inputs and downstream distribution and retail networks (Bonvillian, 2012, p. 118) – Jia contends that the delocalization of key manufacturing sectors causes disruptions in the whole domestic supply chain, as well as the loss of innovative capabilities linked to manufacturing (Jia & Chu, 2019).
Regaining monetary and fiscal policy space
Besides structural distortions, Jia argues that China’s export-oriented growth model has also obstructed the country’s monetary policy, more specifically the channels of currency issuance. The inflow of foreign currencies, generated by China’s trade surplus as well as inward foreign direct investments from developed countries, have forced the country’s monetary authorities to issue domestic currency (Jia, 2020g). In fact, according to Jia, from 2003 to 2013 the inflow of foreign currencies accounted for more than 95% of China’s issued base money (Jia, 2019b). In order to counterbalance subsequent inflationary pressure, the People’s Bank of China resorted to issuing less base money through other channels, such as the refinancing of domestic banks. Thus, the large-scale inflow of foreign currencies diminished the country’s monetary policy space.
This negatively affected the liquidity of Chinese companies, which have not been able to obtain sufficient financing, and in turn participated in the expansion of shadow banking. In addition, the lack of liquidity reinforced the export-orientation of the Chinese economy: while export-oriented sectors profited from FDI inflow from developed countries, other non-export sectors experienced insufficient financing.
Consequently, Jia contended in 2012 that in order to regain monetary policy space the inflow of foreign currencies should be drastically reduced by reorienting the economy’s focus away from exports to domestic consumption, as well as from attracting FDI (Jia, 2012a). Importantly, rather than dogmatically opposing any exports or FDIs, he emphasizes that these should no longer constitute the core of China’s development strategy.
Additionally, the country should, according to Jia, pursue financial protectionism ‘金融保护主义’ (Jia, 2011). This entails, firstly, refraining from liberalizing its financial sector, notably by cracking down on hot money – international financial flows in search for the highest short-term interest rates. Moreover, the country’s authorities should cease to emit government bonds in foreign currencies, restrict local governments and domestic firms to take loans denominated in foreign currencies, as well as forbid Chinese corporation to seek financing through IPOs on foreign stock exchanges (Jia, 2020c, p. 8).13 In summary, instead of rapid financial liberalization, China should only open its domestic financial market gradually and on a reciprocal basis, while at the same time prioritizing financial security.
Through these measures China should be able to restitute monetary policy space – “complete monetary sovereignty” (Jia, 2020c, p.7). Crucially, this constitutes, according to the MMT’s theoretical framework, the basic prerequisite for leading an expansive fiscal policy (see. notably Footnote 3). Indeed, Jia maintains that insufficient domestic demand should be compensated by fiscal expenses. More specifically, large scale public spending in social sectors, such as education and health, as well as investments in new technologies are deemed necessary. In the wake of the Covid-19 crisis, he markedly urged the country’s leadership to drastically increase fiscal deficit to finance public health services and the construction of advanced technology infrastructures (Jia, 2021b).
Strategy of Asymmetric Globalization
Jia argues that in the current international division of labor developing countries are doomed to stay dependent on developed countries’ high-tech economies. Therefore, China should pursue a strategy of asymmetric globalization ‘不对称全球化战略’ by which ties with developed countries are reduced to a semi-decoupled or shallow globalization state ‘浅度全球化’, while economic relations with other less advanced developing countries are intensified, so as to form a network of deep globalization ‘深度全球化’ (Jia, 2018a). By simultaneously protecting its domestic market from developed countries and securing markets in less developed countries, Chinese industries can claim a position of economic and technological leadership. Eventually, this should enable them to challenge the industries of developed countries. In Jia’s words: “the periphery surrounds the center” ‘外围包围中心’ (Jia, 2015b, p. 10, transl. by author).14 In this context, Jia also began in 2010 to specifically preconize – in reference to the German sociologist Dieter Senghaas’ development strategy of dissociation or decoupling from developed countries (Senghaas, 1979) – China’s decoupling from the US (Jia, 2020b, p. 63).
Significantly, the asymmetric globalization strategy is founded on the historical experience of developed countries, most prominently the United Kingdom and the United States (Jia, 2018a). Indeed, according to Jia, the UK’s successful rise as the world’s economic hegemon in the beginning of the 19th century can in large part be attributed to its prior asymmetric globalization strategy: the simultaneous protection of its domestic market from foreign competition, notably Indian cotton industry, and creation of new foreign markets for its domestic industries. Although the US’s economic rise seem to follow a similar path, i.e the parallel protection of domestic markets and pursuit of foreign markets, compared to the UK it relied more heavily on its domestic market rather than on foreign ones. Transposing this to the China’s context, Jia argues:
Consequently, China should pursue a decoupling from developed countries, while securing high-end value chains and key technologies, establishing Chinese-led value chains by taking advantage of its domestic market and subsequently competing with developed countries internationally. In this regard, the Belt and Road Initiative (BRI) offers a timely opportunity to promote both Chinese-led international value chains and the upgrading of China’s domestic economy (Jia, 2019a). Indeed, Jia advocates for the implementation of a “Dual Leadership Strategy” ‘双领先战略’ (Jia, 2019a, p. 2, transl. by author) by which harnessing the fourth industrial revolution should enable Chinese companies to establish themselves domestically as leaders within new emerging value chains – “leading the domestic market”国内领先市场 – and become internationally a central supplier of emerging technologies, notably within BRI countries – “leading externally as supplier” ‘对外领先供货商’ (ibid, p.2).
5. An Economist for China’s new era?
With the presentation of China’s new development pattern of Dual Circulation 国内国际双循环 at a Meeting of the Central Financial and Economic Affairs Commission 中央财经委员会in April of 2020 and its subsequent enshrinement as a guiding principle in the country’s 14th five-year plan (FYP) (Y. Liu, 2021), Jia Genliang’s strategy of Great Domestic Circulation appears to have, at least verbally, reached the pinnacle of the policy pyramid. In fact, although the official formulation refers to mutual reinforcement between domestic and international circulation, it clearly identifies the ‘great’ domestic circulation as the developments strategy’s core.15
Besides the linguistic similarity, the Dual Circulation policy shares several common characteristics with Jia’s Great Domestic Circulation. First, both imply a fundamental shift in the country’s economic thinking. Indeed, for Jia “[…] the transforming of the economic development approach is an ideological revolution […]” (Jia, 2010b). Arguably, the Dual Circulation represents first-and-foremost the translation of a profound shift in the leadership’s view on China’s economic path rather than a concrete policy agenda similar to Made in China 2025. Second, as a whole Jia’s policy agenda is in essence motivated by a reflection on China’s long-term economic development, as well as its implications on its international relations. For instance, the decoupling from the US was notably justified by Jia in 2010 using Lists reflection on different development stages: having attained a certain intermediate level of economic development, countries are compelled to partially isolate themselves from leading economic powers in order to achieve further economic upgrading (Jia, 2020d). In parallel, Jia recognized that developed countries would themselves increasingly turn to protectionist measures in the wake of the financial crisis, thus heightening the necessity for China to preemptively shift to a an inward-turned economic model (Jia, 2013a). Similarly, as is made clear in Vice-premier Liu He 刘鹤 widely cited article, the Dual Circulation aims both “to adapt to China’s changing development stage”, as well as “to cope with the complicated changes in its international environment” (H. Liu, 2020, transl. by author).
With the timely publication of his book “The Great Domestic Circulation: Economic development strategy and policy choices” in August 2020, the pertinence of Jia’s work has gained in acknowledgement. Markedly, Yu Yongding 余永定, the Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS), recently wrote:
Yet more than a visionary or idealist, Jia Genliang should rather be considered a realist thinker. In fact, his theoretical framework, as well as policy agenda build on widely shared assessments regarding the necessary reorientation China’s development model and the restructuring of its economic system. As Cai Hongbin 蔡洪滨, then dean of the prestigious Guanghua School of Management at Peking University, noted in 2012: “[…] it has already become a national consensus that the structural growth method relying on investment and exports can not be sustained, and that sustainable economic growth needs to shift to domestic consumption demand.” (Cai, 2012, transl. by author). Analogously to Jia’s focus on technological innovation, Hong Yinxing 洪银兴 – Economics professor at the Nanjing University and vice-chair of the Ministry of Education’s social science commission – suggested in 2009 that, following the example of Jiangsu Province, China’s economically advanced eastern provinces should advance the transition to an innovation economy (Hong, 2009). In addition, Jia’s policy recommendations are rooted in preexisting long-term policy developments. For instance, Jia’s call to shift from an export-led to domestic demand-led growth model echoes China’s official policy of expanding domestic demand, which has since the 1997 Asian financial crisis become a recurring mantra invoked in the wake of external demand shocks, yet only recently emerged as a priority in the PRC’s development strategy, namely in the 13th FYP (2016-2020) and 14th FYP (2021-2025) (see notably, Aglietta et al., 2021; Stiglitz, 2016, pp. 267–270). Furthermore, since the conceptualization of ‘Strategic Emerging Industries’ program in 2010, China’s national industrial policy focus was progressively redirected to the promotion of high-end technologies through direct state interventions (Naughton, 2021, Chapter 3 & 4), as well as the partial decoupling of key strategic technology sectors (Yu, 2021b). Arguably, the PRC was already for some time gradually converging towards an industrial policy strategy similar to Jia’s principal development precept: in order to successfully develop, countries ought to capture the high-end of international value chains by gaining control over key technologies, notably through protectionist measures and active industrial policy. In that sense, Jia’s policy framework echoes in many ways preexistent trends in China’s reform process.
Crucially, throughout his many articles Jia draws up a comprehensive policy agenda, which not only encompasses most major macroeconomic policy fields, but more importantly seeks to integrate them into a comprehensive development strategy (see. Figure 1). Fundamentally, Jia’s policy strategy is structured around the principle that the control over high-end value-added segments of the global economy, as well as their underlying core technologies is crucial for China’s further development. Secondly, the shift away from a focus on exports towards the domestic market – from the Great International Circulation to the Great Domestic Circulation – provides an overarching development direction.
Figure 2: Great Domestic Circulation Strategy – Schematic overview
Note: Above diagram seeks to reflect the linkages between Jia Genliang’s different policy proposals articulated throughout his articles. It should be noted that this is based on the author’s assessment and does not represent an exhaustive depiction.
First and foremost, this shift entails the strengthening of China’s domestic integration process, that is the unification of its internal market through deepening its domestic value chains. For this purpose, Jia proposes a wide policy-mix including an active research and innovation policy focusing on core technologies, the expansion of domestic demand through wage rises and public sectors investments, markedly in education and health, as well as a following an extensive policy of selective trade protectionism. Importantly, the protectionist measures, especially import substitution program, should aim at enabling the capture of high-end value chains by centering on goods, inputs as well as technologies relevant to these. In this regard, Jia argues in favor of a partial decoupling with the leading economies of the Global North, which currently dominate the high-end segments of global value chains. On the other hand, a deepening of economic relations with the Global South would support the establishment of Chinese-led international value chains. Lastly, the rise in fiscal spending, associated with the increase in public investments, as well as an active industrial-and research and innovation policy, should be financed by an expansionary monetary policy. This in turn would, according to Jia, necessitate the broadening of the PRC’s monetary policy space, especially by stemming the inflow of foreign exchange, as well as by fostering the internationalization of the RMB.
Although Jia Genliang does not represent China’s most prominent economist both domestically – he remains less known and influential compared to senior reform economists, such as Wu Jinglian 吴敬琏, or mediatized economists, such as Lin Yifu – or internationally – his socialization outside of China seems to have largely been limited to Heterodox networks, in particular Evolutionary Economics. Yet, the farsightedness and perspicacity of his economic framework and policy agenda make him one of the country’s most consequential economic thinker. In many ways Jia has anticipated the direction of China’s current economic policy under the current central leadership and its New Era of Socialism with Chinese Characteristics中国特色社会主义新时代. Most strikingly, his belief in economic nationalism as a mean for advancing China’s economic development resonates with the New Era’s spirit. His work is not only valuable for understanding the reasons behind the shifts in China’s economic policy, but also its potential future developments. In that sense, Jia Genliang might well be an economist for China’s New Era.
1 The Prebisch-Singer Thesis claims that in the long-term the prices of primary products decline relative to those of manufactured goods, due the latter’s superior income elasticity. Therefore, the terms of trade of countries primarily exporting natural resources, for the most part developing countries, are likely to deteriorate (for an in-depth discussion see. Ziesemer, 1998)
2 According to MMT, a currency is an institution, rather than a commodity, serving as a unit for denominating social obligations. In the case of a sovereign currency, obligations are mainly twofold: first taxes and second government debt. Countries levying taxes and issuing debt not exclusively in their own currency can’t be considered as possessing a sovereign currency. In this regard MMT is building on the theoretical tradition of Chartalism – a theoretical current of the beginning of the 20th century originating from the German economist Georg Friedrich Knapp, which argues that the value of currencies is derived by the ability of states to levy taxes.
3 MMT scholars argues that although sovereign countries do not face a budget constraint, i.e they can in theory issue an unlimited amount of their currency to finance their fiscal expenditures, they are still restrained by real resource constraints, that is the finite volume of economic resources, such as labor force or natural materials. Indeed, excessive spending compared to the available real resource, notably in bottlenecks, would increase the risk of inflation. Hence, MMT does not preconize that sovereign currency governments run an endless and limitless fiscal deficit.
4 Jia Genliang first proposed his policy agenda in 2013 – then formulated as “state protection, domestic market, sovereign credit, smart electrical grid, south-south growth” [transl. by author] (国家保护，内需市场，主权信贷，智能电网，南南成长) – and subsequently updated it to its present form in 2014.
5 Jia’s concept of an “integration of the domestic economy” [transl. by author] ‘国内经济一体化’ is founded on Robert H. Wade’s differentiation between “external integration” and “internal integration”. The later affirmed that, rather than the integration into the global economy, the internal integration of a country’s national economy – consisting of the establishment of “[…] a dense set of input–output linkages between sectors […] and a structure of demand such that a high proportion of domestic production is sold to domestic wage earners […]” (R. H. Wade, 2003, p. 635) – is crucial for its development.
6 While certain of the deficiencies pointed out by Jia in 2012 and 2013 have seen considerable improvements, most prominently the country’s domestic infrastructure network, the underlying causes – local protectionism and the fragility of China’s domestic high-end value chains – still persist to this day.
7 According to Jia, China’s south-western and south-central parts 中西南部 include for the former Sichuan, Chongqing, Guizhou, Yunnan, Guangxi and Shaanxi, and for the latter Shanxi, Hennan, Hubei, Hunnan , Anhui and Jiangxi (Jia, 2020a, p. 108).
8 While export tax refunds, in Chinese 出口退税, still largely subsist, they have notably been abolished for a portion of steel products beginning in May 2021 (see 中华人民共和国中央人民政府, 关于取消部分钢铁产品出口退税的公告, http://www.gov.cn/zhengce/zhengceku/2021-04/28/content_5603588.htm).
9 Jia asserts that China was kept from investing its dollar reserves into ‘real economic resources’ by the US’s foreign investment restrictions (Jia, 2021a). Hence, rather than criticizing the purchase of US government bonds, he points out the underlying cause: China’s export-led economic model.
10 The concept of (global) currency global seeks to explain the asymmetries in the global monetary system in which “[…] few currencies are used not only within but also beyond national boundaries, the majority of countries, from a global perspective, see their currency space shrunk to an area much smaller than their territory” (Prates et al., 2018, p. 209). Prates et al. (2019) markedly assert that this currency hierarchy or currency pyramid is structured on the currency’s divergent degree of liquidity, measured on the ability of a currency to function as an international store of value, unit of account and medium of exchange. The currencies of peripheral economies are characterized by a lower liquidity and thus, in order to attract foreign investors, these countries need to implement compensating measures, such as setting a higher short-term interest rate. This, however, also implies that these countries are faced with a reduced policy space, especially in regard to economic stimulation, as the reduction of compensating measures, for example lowering the short-term interest rate, would lead to the swift outflow of capital (ibid).
11 The US post-Keynesian economist, Hyman P. Minsky, argued that modern economies are not necessarily in or at least constantly converging to a state of equilibrium (Minsky, 1992). In opposition, he explained that these exhibit a certain tendency to instability, due to their high degree of complex financial relations. Within the financial system, three different types of actors determine the stability of the economic system: firstly, hedge financing units are able to pay for contractual payment obligations with their cashflow, secondly, speculative financing units can only repay the interests on their obligations, while, thirdly, the cash flow of ponzi financing units is insufficient to even pay interests. Crucially, an economy can in a boom period transition from a hedge- to speculative- and then to ponzi-dominated finance, due to inflationary pressure – rise of asset prices – and, hence, shift from being a stable and contained economy to an instable and crisis prone one.
12 Arguably, Jia and He’s comparison between Germany and Japan can be contested. Indeed, the Euro era is not only limited to Germany and the importance of the Euro within global trade can not only be attributed to Germany alone. However, their reflection on the advantages of currency internationalization through trade rather than financial liberalization remains compelling.
13 According to Jia, the listing of Chinese companies on foreign stock exchanges, notably the country’s tech giants on the NASDAQ, deteriorates the country’s monetary policy space by adding to the influx of foreign currencies. Indeed, the financing gained by Chinese companies on foreign stock exchanges can be assumed to be at least partially intended to support their expansion on the Chinese market. Moreover, he contends that this represents a loss of sovereignty for China, as these would notably fall under the jurisdiction of foreign financial authorities. In that sense, Jia poses the question: “Are the US listed companies, such as Alibaba, Baidu and others, Chinese companies or American companies?” (Jia, 2018c).
14 Interestingly, Jia draws in this context a parallel to Mao Zedong’s revolutionary strategy of “encircling the cities from the rural areas” ‘农村包围城市’ (Jia, 2016a, p. 41).
15 The official formulation is as follows: “a new development pattern in which domestic and foreign markets boost each other with the domestic market as the mainstay” 以国内大循环为主体, 国内国际双循环相互促进的新发展格局 (General Office of the Ministry of Finance, 2021). The exact correspondence between the official and Jia’s wording – both employing the term 国内大循环 – is especially striking. This should not be interpreted as evidence for Jia’s direct influence on the conceptualization of the Dual Circulation. Indeed, the official policy formulation might rather echo the previously prevalent theory of Great International Circulation 国际大循环. However, in this case both would share a similar approach, as Jia’s Great Domestic Circulation strategy also originates to a large extend from a critique of the Great International Circulation theory.
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Jia, G. (2015b). Why did New-Listian Economics come to be established as a school of thought? [Transl. By author]. Teaching and Research [Chinese Journal], 03, 6–17. 贾根良. 新李斯特经济学作为一个学派何以成立?[J]. 教学与研究, 2015(03): 6-17.
Jia, G. (2015c). Why we should commemorate the 90th anniversary of the introduction of Listian economics to China [transl. By author]. Study & Exploration [Chinese Journal], 234(1), 79–80. 贾根良. 为什么要纪念李斯特经济学传入中国90周年[J]. 学习与探索, 2015(01): 79-80.
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