Economic Impact Of Quake Likely To Be Limited And Temporary

The macroeconomic impact of the earthquake in Sichuan is likely to be modest in the medium and long-term, and less than that of the severe snowstorms this past winter.

The region is not as important an industrial centre as those on the east coast. Sichuan accounts for 3.9% of China’s GDP and 2.5% of its manufacturing output and Chongqing for 1.6% of GDP and 1% of manufacturing output. Nor is the region a big exporter. It accounts for no more than 1% of all exports.

There is processing of raw materials. The quake has disrupted power supplies to aluminum smelters and two chemical plants have collapsed. Most heavy industry has stopped anyway and will not resume until safety and damage checks have been completed. There is likely to be some spike in prices of metals and raw materials. Sichuan also supplies more than a quarter of the country’s natural gas. How much damage there is to production and distribution will determine how damaging that proves to be to the country as a whole, but the gas fields are south of the quake’s epicenter so should have escaped the worst.

A larger inflationary concern will be for the prices of two foods already suffering from rising prices, pork and rice. Sichuan is China’s biggest pig farming province (it supplies 10% of the country’s pork) and grows 7.3% of the country’s rice. The interruption to supplies will be exacerbated for as long as transport links to the rest of China remain disrupted. That is likely to be a short term effect.

On the plus side the rebuilding of the region will provide a stimulus to local economic activity, especially the construction of earthquake proof buildings in Chongqing and Chengdu, which China is trying to build up into a local version of Silicon Valley. The Intel plant there is running on back up power and has sent its workforce home until midweek. Of the 29 listed Sichuan companies whose shares were suspended from trading on the Shanghai stock exchange on Monday, 23 have said the disaster had no or limited impact on their operations. But attention on rebuilding and recovery will have to wait while rescue and search continues.

1 Comment

Filed under Economy, Sichuan earthquake

One response to “Economic Impact Of Quake Likely To Be Limited And Temporary

  1. I can tell that this is not the first time at all that you write about this topic. Why have you chosen it again?

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