The question of the hour, then, still confronts us:

How will China grow?

There are really only two viable options:

1. Increase investment, public and private.

2. Orient the economy away from a high savings, high export economy towards domestic consumption.

Both are hard to see. For two reasons:

1. The first thing to say is that it is highly unlikely that a private sector that specializes in exports will launch an investment boom right as demand for their products plummet.

2. And on the second point: moving towards a Chinese economy that consumes more and saves less - "the American way!" - would be very welcome but the current regime is making that incredibly difficult.

And that is really it.

Let us start with the second point:

The obvious solution, greater domestic growth rather than exports, is lying right there for the taking but it will require the Chinese Communist Party to relax restrictions and allow the economy and society to flourish.

Unfortunately, as the recent Congress demonstrated, they seemed destined to go in the completely opposite direction.

This isn't because the Party disagrees with the end goal. The CCP would love for its people to become wealthier and even to increase the distribution of income in a more equitable fashion but it is getting there that they find politically difficult (perhaps impossible?) to do.

This is especially true for the current leader, President Xi. He speaks warmly about the Chinese dream and the country becoming wealthier but when push comes to shove we have a lot of evidence he isn't willing to embrace what will get the Chinese there.

At its core this is because openness creates wealth and experimentation. The former poses a threat by creating rival centers of power and the latter challenged a political system (and especially its current leader) desperate to control every facet of public life.

The necessary reforms are not just known, they have been published, endorsed and passed by Xi Jinping's administration early in his tenure back in 2013.

However, despite identifying the problem correctly and coming up with a robust policy program of structural reform that might solve it, the Communist Party has found it nigh on impossible to actually implement any of the above reform agenda.

The CCP have not:

1. Built up a strong social safety net and pension system to encourage people to spend rather than save for any unplanned contingencies or retirement.

2. Reformed the infamous hukou registration system that keeps many (poor) Chinese administratively attached to their local provinces and unable to access the services available in the larger cities they have moved to and built a life.

3. Allowed rural landowners to buy and sell property.

There are plenty of other examples but the above triumvirate keeps many Chinese citizens from being able to achieve the "Chinese Dream" that President Xi has spoken about so frequently.

The failure of hukou reform: long mooted and much discussed but never achieved is particularly pernicious. It keeps hundreds of millions of Chinese from reaching their full potential and does so for no other reason than the CCP's legacy and love of control.

That last word is critical to always remember here.

The state may be inflexible, capricious, uneven and even worse but above all, they desire control. Being unwilling to accept the experimentation, the failure and even the chaos of an open society imposes a hard limit for what is possible domestically.

If what the Xi Jinping regime should do is known but unlikely, what will they do?

There are two likely outcomes:

1. Rather than achieve a surge of private investment the government will likely do it itself via a new massive public infrastructure program to stimulate the economy and make up for the drop of exports.

2. They may also take the regrettable step of providing support to the export sector to, at the very least, keep unemployment from growing.

Both approaches would be a mistake. For the former, China already has built too much infrastructure and is now very much at risk of being weighed down by even more white elephants. But that doesn't mean they will not build more, to the contrary!

On the second, China is deeply worried about the debt of households and the corporate sector and it has engineered a very painful crackdown in the property sector, the other great engine of Chinese growth over the last 30 years.

Creating similar problems in the previously very competitive export sector would likely be a big mistake as would increasing the debt in yet another sector of the economy.

Over the short term perhaps the best we can hope for is that, as 2023 progresses, Xi Jinping will at last roll back his dreadful "Zero Covid" policies that will almost certainly unleash a wall of savings, repressed animal spirits and domestic consumption.

That might alleviate some of the depressed conditions but over the medium to long term, the old problems will reemerge. Despite all the rhetoric to the contrary, as long as China is heavily reliant on its export sector it will be vulnerable to external shocks and external events more generally.

And will President Xi be keen to roll back Zero Covid? We aren't so sure. It might keep growth low and his people upset but it also means that he and his regime have an almost unprecedented level of control.

And so, as we have just witnessed in the latest Congress, any concerted reform and opening is very unlikely over the short-to-medium and perhaps long term.

Xi Jinping has just been elected to a third term and, as we have seen for time immemorial, autocrats don't ever seem to fall out of love with holding power.

China may relax Covid restrictions but it will not relax its political approach to running its economy.

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