While it’s been a little over seven months since the end of China’s zero-COVID policies, the Chinese economy has not come roaring back as expected. Instead, there are signs of a slowdown with even more turbulence ahead: Exports plummeted in July, and China’s National Bureau of Statistics announced Wednesday that consumer prices also fell, causing some to fear the country could be headed toward a deflationary spiral.

The problem might lie with China’s political economy and the implementation of the zero-COVID policies, wrote Adam Posen, president of the Peterson Institute for International Economics, in a Foreign Affairs article.

“That zero-COVID policy, as implemented in China, made things feel very insecure for average Chinese people in their livelihoods and their assets,” Posen said. “People are abjuring things like durable goods, purchases, investment in small business, stuff that ties up their assets, and they’re preferring things that feel safer and more liquid, like bank accounts.”

Posen spoke with “Marketplace” host Kai Ryssdal about the changes in China’s political economy. The following is an edited transcript of their conversation.

Kai Ryssdal: I will start with the title of this piece. It is called “The End of China’s Economic Miracle.” I note for the record there is no question mark on the end of that title. What are you seeing?

Adam Posen: Well, there is legitimately still a question, but you’re right, the title sticks my head out there. What I see is a trend that had been already underway since the start of [President Xi Jinping’s] term, roughly 2015, of greater and greater state intervention in the economy. That zero-COVID policy, as implemented in China, made things feel very insecure for average Chinese people in their livelihoods and their assets. It’s very different than when they were clamping down on Ant or Alibaba, which is, you know, some big oligarchs. This is people’s everyday lives.

Ryssdal: You know, it’s funny, you spend as much, maybe more time on the politics of the Chinese economy as you do the actual nuts and bolts. And one of the things you point out is that the Chinese people, because of the arbitrariness of what President Xi has done during the zero-COVID, they are just responding less to his stimuli, if you will, and they’re doing whatever they feel they need to do to survive.

Posen: Yeah, and I think it’s very important, not so much to pretend I’m an expert in Chinese politics, which you kindly don’t pretend, but to say that the political economy matters. And this is something that’s not just airy, we’ve seen this in other governments with autocratic regimes, that if you can hold off being too interventionist, too political in people’s lives, and the people know what I call “the no politics, no problem” deal. So protesting in Tiananmen Square or in Hong Kong will get you hammered, but your everyday life — if you’re a nonpolitical person — you can go, you can invest, you can spend. And the economics of this are of a very clear prediction. One piece is what you said, which is that stimulus policies — whatever the economic policies of government to clean up the banking system, to put cash in people’s pockets — are going to be less effective, because people don’t necessarily believe that they’ll be maintained. The other piece is that it’s not just savings have shot up, because overall savings haven’t changed that much; it’s that specifically people are abjuring things like durable goods, purchases, investment in small business, stuff that ties up their assets, and they’re preferring things that feel safer and more liquid like bank accounts.

Ryssdal: You know, just on that, you know, I forget what you call it — 

Posen: No politics, no problem.

Ryssdal: No politics, no problem, right. So the deal has been for 40-plus years now in China that the government will let you get, you know, “rich” as long as you don’t get political. Do you think that that bargain is over now?

Posen: I think it is in people’s minds. And they will try to reinstate it. And we’ve already seen leaders from the Communist Party around Xi say, “Oh, no, we want a vibrant private sector in China.” Oh, you big tech tycoons, you can be reassured.” But it’s hard to be credible once you get to that point. Once Xi has so visibly, forcibly crossed the rubicon, and there’s no signs that he regrets this, I don’t think he can get it back.

Ryssdal: One imagines this piece is being widely read in the halls of Congress and in the White House. And people are seeing, as you point out in this piece, that there may be some opportunity here for the United States. What do you imagine them to be?

Posen: My view is it’s an opportunity for a rethink and a shift from the United States. So under the Trump administration, and a little more responsibly, honestly, but still, under the Biden administration, there has been this very conflictual approach to China. And one part of it in the economic sphere has been excluding people from China, making students and workers feel unwelcome as potential spies, suspecting Chinese investors who are taking over American companies, buying American assets. And I think we want to go the opposite way. During the 1930s facing the fascist regimes, during the Cold War up to the mid-1980s, it wasn’t clear that we were necessarily outperforming them economically; it was clear that our property rights for individuals and safety of individuals’ livelihoods was better. And I think we can use that in the new conflict between — systemic rivalry between China and the U.S., to say we welcome Chinese investment, we welcome Chinese people, we welcome Chinese ideas. And the more we emphasize exit, it’s not going to be like the Berlin Wall, but the more Xi will put up barriers, and the more he puts up barriers, the more he induces people to exit.

Ryssdal: China has, as you say, in this piece, it has now a case of economic long COVID, right? That what Xi Jinping did during zero-COVID is going to have lasting effects for — and these are your words — it’s going to last for years. And I guess we have to point, out just by way of closing our discussion, that that’s not good for the global economy.

Posen: It’s not. Now to be clear, I’m talking about a drag and more instability and less productivity growth, but not the collapse, by any means, of China. But I think the thing to say is it’s not good for the world. It’s not good for a large number of people in the U.S. who make money selling into China or make money from China assembling pieces of their equipment. It subtracts. And it’s not as destabilizing as we might fear because China has itself become more closed in some ways in recent years. But it shouldn’t be seen as a good thing for China to be economically weakening.