No, Mr HH, not when China’s credit based economy is failing?


By Mwiine Lubemba

No, Mr Hichilema, I’ve thought over it. You can’t FIX the Zambian economy when our largest export market- China’s credit based economy- is failing. Your 10 point economic plan is a desperate, ignorant, political campaign gimmick. In fact if you cared to check with the Archives Department, I’m pretty sure you’ll find countless similar economic plans dating back to 1953 gathering dust.

And it appears even the  Chinese can’t, as you suggest, just come up with a somewhat similar 10 point economic plan of their own to kick start their failing economy all over again.

I’m sure the Chinese know, an economy is dynamic. It’s always in motion whether growing upwards, contracting or sliding downwards. The economists call this a cyclic cycle. It’s rather like a mechanic trying the impossible of replacing a faulty engine piston in a speeding car. It’s similarly not so easy to fix an economic system in motion because if it were so, every nation on this planet would just come up with economic plans of their own and we would have no poor nations.

So, what to do now?

That’s why, I’ve called your 10 point plan a desperate, ignorant, political campaign gimmick not to belittle you, but in the real sense- because in addition to negative ads against Mr Edgar Lungu, your only other political play, Mr Hichilema, has been to try and convince people that something that is obviously positive must be negative as long as it’s coming from the lips of Mr Edgar Lungu. And I’m not saying Mr Lungu has been perfect in the way he has been handling the economy, but I suppose, being the President, has quickly realised that running an economy is no easy task.

Indeed “To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.” That’s how Friedrich Hayek put it in his Nobel Prize Lecture— The Pretence of Knowledge.

And I’ll explain in a moment…

Zambia’s temporary economic boom between 2008 and 2011 was driven by China’s desperation for rapid economic transformation through a credit-fuelled investment boom unlike anything the world has ever seen. Demand for Zambian copper including many base metals and timber export prices to that country–benefitted.

Believe me; I’m also getting bored writing about your “10 point economic plan.” But when I’m in Lusaka and I see your huge campaigns Bill boards that are trying to cheat people, I start to worry.  You’re not being sincere because you’re taking advantage of some gullible Zambians. Simplified—have you considered what would happen to the Zambian economy if China’s economy went belly-up?  And I’d bet, even Mr Godfrey Mwamba, the Vice Presidential running mate and perhaps the only Finance and Investments expert this country has ever produced, hasn’t bothered to think through the message being disseminated through these posters.

I could be wrong, Mr Hichilema,  but if we agree that China was a credit-based economy, built around what has effectively been the dollar standard and is what made it possible, then those of us familiar with the First Law in Thermodynamics should be worried as this presents consequences that even our Chinese economists colleagues missed to consider. Indeed, there’s no limit to the amount of credit that can be created under a fiat money system and this dollar standard has created a very large global boom that spilled over and created our own temporary economic boom in Zambia as U. S. dollars flooded into countries like China and latter trickled down into Zambia and several other third world commodity exporting countries.

This ‘10 point economic plan’ is mere crockery that you’ve so well perfected Mr Hichilema. And while on this point, neither was Zambia’s economic boom during the period 2008 to 2011 the result of Mr Situmbeko Musokotwane’s 5 or 10 years of whatever economic plans he had in place. That short-lived economic boom wasn’t a result of some economic plan at all or Mr Situmbeko’s genius, it was- as we can say, trickle down “Sangwapo.”

Since most of us are not economists, let’s look at this in another way. Between 1990 and 2014, investments in China increased a staggering 50 fold and between 2007 and 2014 alone, investments increased by 236% – when in those last three years from 2011 to 2014 China consumed more cement than the entire U.S.A consumed in the entire 100 years of the last 20th century. Meanwhile, when we compare with the U.S., we see that over the same period, investments in the world’s richest economy increased by only 6%.

Make no mistake, the Chinese economy and their yuan are still strong, but the truth is that the Chinese are deeply dependent on the dollar standard because if they could have given it up, they sure could have done so already. But they can’t.

They desperately need U.S. dollar based trade surpluses with the rest of the world to finance their economy and sustain their jobs. China has had a population explosion in the last four decades and therefore jobs for the Chinese people are the main benefits they receive from this dollar standard.  It’s because of the dollar standard, the effects of globalization and the growing trade deficit the rest of the world has with China that they’ve been able to keep their growing population employed, fed and increasingly prosperous.

True, China has economic plans too, but nowhere have I read or come across an elaborate economic plan or plans that could have deliberately made the Chinese to plan to help keep the global economic bubble inflated through their very rapid credit and investments growth after the U.S. bubble burst in 2008. Because as we have come to see China’s own credit- fuelled- growth also came to an abrupt standstill- taking copper prices down with it sometime in 2014. China now also faces severe problems as a result. And I’m not at all sure if China’s economy grew last year at all—which, if they had an elaborate economic plan in place, we should have been seeing the Chinese economy on a continued growth trajectory and avoided the sudden halt.

Export data on China shows that until the sudden stop, exports used to grow by 30% a year. Today they’re contracting with last year’s exports contracting by 17%.  We shouldn’t expect to see another surge in exports out of China of the likes of the 1990s to 2014 era repeated anytime soon.

What does this mean? Basic chemistry calls this ‘saturation point.’ There’s simply not enough demand in the entire world to permit China’s investment-driven economy to grow. This leads us to the First Law in Thermodynamics which states that the internal energy of a system has to be equal to the work that is being done on the system, plus or minus the heat that flows in or out of the system and any other work that is done on the system.

It means, no matter what the Chinese produce from now onwards, the global economy won’t be able to consume this new production because it’s already teetering on a recession if not outright depression.  In the recent past China was able to export most of its excess production to other countries but now trade is collapsing and global demand is much too weak to absorb further massive Chinese exports.

Meanwhile, the U.S. which is supposed to be China’s major trading partner, the credit growth in that country is also too weak to drive growth within the U.S and abroad and this is unlikely to change anytime soon and we’ll soon see our Chinese buyers we’ve so much depended on for our own economic growth won’t be able to sustain their own economy through an export-led growth. And we haven’t even considered the effects of last Thursday’s British exit from the EU.

As for you Mr Hichilema, I bet you’ll desperately be wondering where you went wrong in your 10 point economic plan once you find you can’t “FIX” the economy (should you be elected president) because China’s investment boom will long since have outpaced demand. And with China’s exports contracting, which is now resulting in heavy losses in their banking system, China’s thirst for our copper and other commodities will vanish.

I’m sure Mr Hichilema, you  know that investments in a country is a net good, and the reason you chose a presidential running mate of Mr Godfrey Bwalya Mwamba’s calibre, an expert in Finance and Investments, but you see, investment is good only as long as it creates goods that can be sold for more than they cost to make. When investment is too high relative to demand, prices fall and investment results in losses, rather than profits. That’s what China is facing and unless I’ve been blinded with  your genius Mr Hichilema, that’s what will happen here following your 10 point economic plan.

Even China, with all its economic plans, realizes it can’t continue having massive levels of investments that has already resulted in far too much excess production capacity. Most of it is already generating losses. And the more they invest now, the more wealth they’ll destroy.  Further investments in loss-generating enterprises will merely result in more losses. But again, the Chinese have a dilemma, without continued high rates of investment; the Chinese economy will fall into a severe recession. That’s the trap.

The Chinese per capita income is far too low to consume the nation’s excess capacity; this has led to a severely imbalanced economy. A comparison between the two world’s richest nations exposes this misfit. In China domestic consumption accounts for about 38% of GDP, (they have a median disposable income of about US$8 per day), while investment is at 44% of GDP, but when you look at the U.S., domestic consumption is approximately at 68% of GDP against investment of only 18%. (In Zambia investment as %GDP is at 33% as of 2014).

The Chinese are saying they want to switch from an export-based economy to a consumption-driven model since the export model is too vulnerable to a global slowdown. And the Zambian economy has been too dependent on metal exports to China; we now want to diversify from copper to other export commodities and local services. In both instances, this presents major challenges.

The case for China: there’s really no easy way to shift from investment-driven growth to consumption driven growth, for a number of reasons. If, for example, the Chinese lay off thousands of their steel foundry workers those people aren’t going to consume more but less. If they move those people from manufacturing jobs into the service sector jobs, the service sector jobs pay a lot less than manufacturing jobs. To boost consumption the Chinese will need to boost people’s incomes dramatically. But when disposable income per capita is a mere US$8 per day, those people can’t really consume a great deal.

In Zambia, diversification from copper to agriculture still leaves us vulnerable to weather and any global slowdown but even as you suggest Mr Hichilema, that you’ll increase free fertilizer bags from two to eight per maize farmer, if the average yield remains the same per bag of fertilizer, the logistics and economics of scale alone, will make it very difficult for you to substitute the current meagre US$5 billion receipts from copper and other base metals with maize and other grain produce. (Zambia will need to grow in excess of 15 million tonnes of grains or five to six times the current production— assuming an optimistic average gross export price of US$350 per tonne).

Even if the Chinese managed to increase wages and consumption that presents another problem they’ll soon lose their competitive advantage. According to labour statistical data out of China, Chinese factory workers wages are set to increase to about US$60 per day within the next ten years.  This sounds like a positive move leading to a consumption economy but before long, Chinese wages won’t be globally competitive anymore.

Now imagine a diversified Zambian economy into agriculture, I doubt many farmers including yo Mr Hichilema, would manage to pay present public service minimum wages of K3000 per month because if they did, at an average export grain price of US$350 per tonne, our grain exports would globally become uncompetitive and most farmers would soon go out of business and together with many manufacturing jobs would move out of Zambia into neighbouring Malawi, Namibia, Burundi, Mozambique etc. Exports would plunge and thousands of jobs would be lost. If we also don’t exit SADC/COMESA, there’re more than 200 million people out there that would be happy to work for K500 per month. They haven’t even entered the game, so we’re a long way to go before we run out of K500 a month labour. That’ll be Zambia’s problem when attracting foreign direct investments into agriculture.

With China’s economy in turbulence, Zambia isn’t going to have a very much GDP growth to speak of at all, not for a very long time potentially. Zambia’s Chinese demand driven export-fuelled growth of the last decade has come to an end. And its attempts to transition to more of a diversified agriculture economy and traditional manufacturing of goods already being made cheaply and exported within SADC and by Asian countries will not be easy. But if Zambia boosts its Science- Research and Development base, becomes an African Technology hub and start to manufacture new gadgets and provide new innovative services that other people in the SADC/COMESA and the world will desperately want to buy from us, we can hopefully avoid a catastrophic economic collapse.

No–Mr Hakainde Hichilema, the Zambian export based economy has been too dependent on China’s credit based economy that’s now failing, and your 10 point economic plan will not bring about a stronger economy nor will it ‘FIX’ the Zambian economy as claimed. It’s merely a desperate, ignorant, political campaign gimmick.


Just a thought,



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