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Source: www.asiaecon.org |

HOW WILL CHINA'S RECENT EARTHQUAKE AFFECT THE CHINESE ECONOMY?


Officials Thursday estimated the death toll from China's earthquake at over 55,000 victims. Measured at a 7.9 on the Richter scale, the earthquake proved catastrophic for the Sichuan province in Wenchuan County.


Officials Thursday have estimated the death toll from China’s earthquake at over 55,000 victims. Measured at a 7.9 on the Richter scale, the earthquake proved catastrophic for the Sichuan province in Wenchuan County. The Beijing government has said that over 14,000 businesses have been damaged in the Sichuan area. Two chemical plants collapsed in Shifang city last Monday, burying hundreds and releasing more than 80 tons of toxic liquid ammonia. One of China’s largest electric companies, Donfang Electric in Hanwang, faced severe damages. The Taipinyi hydropower plant of China Huaneng Group, the country’s largest power generation company is located in the Wenchuan country where the earthquake hit, and was miraculously unscathed.

While donations and relief aid have poured into the region, loss estimates are still rising. Only 1 billion USD of these estimates are believed to be insured damage, roughly 5%t of total loss, as earthquake coverage has remained optional for both residents and commercial businesses in the still developing region.

Stock market investors were left this week not knowing how to feel. A large agricultural producer, Sechuan province is predicted to become a net drain on food for the next few months, rather than a net provider. Overall consumption in the region is predicted to fall as much as a 33%. Sichuan also houses 40% of China’s natural gas deposits and 22% of its natural gas production. Authorities will now feel pressure to increase fuel prices to that of world standards, as they buy natural gas on international markets and pass costs along to consumers.

The long-term truth is that Sichuan is not actually a major economic centre. It accounts for 4.3% of China’s GDP and .6% of the country exports. Direct economic losses are estimated to be around 6.5 billion euros. However in the grand scale view of China’s economy, this loss is relatively insignificant. “Although the quake disaster will have a negative impact on growth in the economy and on corporate earnings in the second quarter, the impact would be a short-term one” said Zhu Jianfang, an economist with CITIC Securities. Zhu expects the earthquake to take away .2 % points off of Chinese economic growth this year, and believes the economy will return to normal growth in the third and fourth quarters.

The immediate future of the Sechuan province looks dismal, but reconstruction is expected to stimulate investment and compensate for closed factories and lost jobs. US investment banks Merrill Lynch and Goldman Sachs say the quake should not have as much of an impact as the huge snow and ice storms that hit much of the country during the winter. Unlike the snowstorm of January and February that paralyzed some of the most important railways and highways in China, this earthquake has had little significant effect on local transport systems. Nor has it reached the same proportion of damage to production and agricultural sectors.

There will be an immediate loss in income, and human loss, as well as shaky confidence in investors as the province recovers. However the actual loss must be put in context, as Chinese GDP will continue its aforementioned growth, and the community of Sechuan works together to mourn, rebuild and repair the earthquake’s damage.

Source: www.asiaecon.org |


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