Gerard Rolland and Nicolas Neo*

International markets and investors are excited about China’s “opening up” after the country abandoned its “zero covid” policy.

No one can say exactly how many people died when 80% of the Chinese were reported to have been infected, but there are clear signs of an economic recovery after three years of hard lockdown. So are we going back to China’s high growth rates of the past decades?

While growth will no doubt return to impressive pace in the short term, it looks like the era of China’s booming growth is over. And this is because of structural problems that should not be easily solved, and also because of the wrong policy, which, although it could be solved so far.

Let’s start with structural issues. Long-term economic growth depends primarily on three factors: labor force growth, investment efficiency and innovation.

Chinese industry has benefited most from the inexhaustible flow of cheap labor from the provinces. This is the end. The availability of labor will shrink more and more, and recent demographic changes will accelerate these processes. China’s population aging is deeply structural and therefore difficult to reverse. According to the Pew Institute, under a moderate scenario, China’s population in 2100 will almost halve, dropping to 767 million from 1.426 billion today.

The efficiency of investment is also declining after Xi Jinping’s authoritarian attitude towards the private sector. Instead, the Chinese president is betting on the less efficient public sector, which is in the arms of the Communist Party, crowding out private initiative. Jack Ma, founder of Alibaba’s Amazon China and a symbol of the party’s will to big business, is reportedly now hiding somewhere in Tokyo after openly criticizing the Chinese leadership’s attitude towards high technology. In addition, after the boom in infrastructure investment over the past 20 years, declining returns on capital lower future returns on investment.

Finally, innovation is affected by the suppression of high-tech firms, but this does not describe the big picture.

First, Western countries are beginning to build walls against China, copying advanced technologies, which means that the latter will have to rely more on its own strength.

Secondly, research in China takes place in an atmosphere of oppression and lack of individual freedoms.

Mr. Xi relies on a binary system in which STEM (science, technology, engineering, math) operates freely while the social sciences are under party control.

One might then wonder how much the lack of freedom of thought affects the productivity of research.

China invests heavily in innovation, but only under the oversight of bureaucratic political commissioners who discourage creativity and originality. This suffocating effect is facilitated by China’s collectivist culture, which frowns on deviations from conformity and therefore discourages innovation from flourishing.

In addition to structural problems, the wrong policies of the Communist Party added an additional burden to the development of the country.

First, the lack of local government is inextricably linked to the real estate crisis. The first sold real estate to cover their deficit, increasing economic activity in the market, but at the same time creating a bubble. The foundations of Evergrande, a real estate giant with over $300 billion in assets, are reeling from unintended consequences.

Second, despite all the related claims of increased consumption by the private sector, its share of China’s GDP remains relatively low: just over 50%, compared to 65% in most developed countries. This is bad news for the overall demand of the Chinese economy.

Thirdly, many countries to which China has provided large sums of money under the Belt and Road Initiative are not paying back their debts to China. Such phenomena will place a significant burden on China’s balance sheet in the near future and will intensify as the global economy comes under recessionary pressures.

Finally, even if supply chains recover quickly from zero covid, an aggressive foreign policy is hurting Chinese exports. The intimidation of states such as Australia, Lithuania and, more recently, the Czech Republic, gives the West and its allies an incentive to diversify their international trade and reduce their dependence on Chinese goods. This development will further weaken the engine of China’s economic growth.

Over the past 40 years, the “Chinese miracle” has rescued about 800 million people from absolute poverty. Unrepeatable as it is, there is good reason to believe that the golden decades of Chinese growth are in the past, despite all of its post-COVID ups and downs. Consequences on us.

The legitimacy of the Communist Party was based on the miracle of economic growth. An end to long-term high growth will cause a headache for the Chinese leadership.

Gerard Roland is the E. Morris Cox Professor of Economics and Political Science at the University of California, Berkeley, and Nikolaos Neos is an Economist.