Abstract: Under the background of declining return on capital input and declining labor input, China needs to build a pattern of domestic and international circulation to enhance total factor productivity and promote high-quality economic development. This paper, adopting the theory of international economics, constructs the theoretical model of technological progress, economic growth and dual circulation system. Through economic simulation it finds that the key to build the dual systemlies in expanding the scale of domestic market. By analyzing Japan's attempt to build a dual circulation system, it is not difficult to find that the external circulation works well while the internal oneruns opposite. The wrong macroeconomic policy has triggered a bubble economy, resulting in a long-term downturn in enterprise investment and household consumption. China should learn from Japan's experience, strengthen government guidance so as to promote the stable development of dualcirculation.

Key words: dual circulation, total factor productivity, technological progress, economic growth, market size, bubble economy