Economic Impacts of Sichuan Quake on China

Tuesday, May 13, 2008 8:39
Posted in category China's Other Cities

Over the last 24 hours I have been asked to give my thoughts about the impact of the quake on China’s economy, and too be honest I was working to much on emailing friends in the area to worry about it.

Now, that I have a bit of downtime though, I think that it is important to address the fact that there will be a long term impact on the area and there are a few things that should be said.

First, the hardest hit areas have historically developed slower from an economical perspective as they lacked the natural export markets that the cities on the east coast have. However, the area of Mianyang is a major city of Sichuan, and the role of this area to the southwest market was becoming more important.

So, from a manufacturing perspective I do not see many industries that will see a significant impact at the 1st and 2nd tier, however where we will need to wait and see will be on the raw material front. this is a resource rich area, and it is possible that this catastrophe will hinder some supply lines.

Second, great expense and resources will go into the rescue efforts, clean up, and rebuilding, and this and that means that resources will be diverted. energy, gas, trucks, rail, etc. will all be diverted to support the efforts, and that may mean some disruptions in the middle of the country.. some on the east coast.

Third, from an agricultural perspective, Sichuan is an important producer of agricultural products, particularly pork, and depending on the severity of the damage to farms inflationary pressure may increase.

Fourth, as we saw from the fact that many Sichuan stocks were halted and the exchange itself fell, there could be some mid term impact on the exchange and the stocks traded on it (insurance stocks) that occurs.

Over the next few weeks, as the debris is cleared and the damage assessed, a clearer picture will come forward. for me, I am going to be focused on working with agencies I know in the area to do what I can, but I think it is important that investors in China understand what the potential ripples are.

As we saw just a few months ago, the Chinese government can quickly mobilize and recover from major catastropies and I wish them all the best in their efforts. If your firm is a steel manufacturer, medical equipment group, pharmaceutical I urge you to follow the situation closely and work with governments and NGOs in the area to assess and address the needs.

If I hear of anything that I think is urgent from the business side, I will be sure to pass it along, but I am confident that the economic impact will be less than the recent snow storms.

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9 Responses to “Economic Impacts of Sichuan Quake on China”

  1. Nick says:

    May 14th, 2008 at 12:35 am

    Impact on aluminum production:

    According to State Grid, six transformer substations were shut down, reducing power supply to the Sichuan power grid by 4 million kilovolts after a 500-KV and five 220-KV transformer substations in Sichuan were affected by the earthquake. In addition, five power plants in western Sichuan were disconnected from the power grid.

    “Any possible structural damage to facilities or power cuts will heavily impact aluminium production. Sichuan Meishan Aostar Aluminum Co. Ltd. (Meishan Aostar) and Sichuan Guangyuan Aostar Aluminum Co. Ltd., in Sichuan’s Meishan City and Guangyuan City close to Wenchuan County, are likely to be affected,” Huang Fulong, an analyst at Kaichao Investment Bank, said.

    http://www.resourceinvestor.com/pebble.asp?relid=42728

  2. Rich says:

    May 14th, 2008 at 1:03 am

    Thanks Nick – To be honest, I am sure that we are going to see a hike in raw materials. Steel, cement, metals, oil, etc..

    R

  3. Thomas Chow says:

    May 14th, 2008 at 12:36 pm

    I am actually curious if some materials like steel will be hiked, or have to be rationed given that steel was already an increasingly demanded and yet less and less in-supply commodity. In my mind, the amount of materials needed to rebuild a lot of the damage will surely impact businesses. But I would like to know your thoughts, particularly on steel.

  4. Nick says:

    May 15th, 2008 at 12:08 am

    Zinc smelters in Sichuan and surrounding provinces have shut down as much as 510,000 tonnes of zinc smelting capacity following the earthquake that devastated the southwestern province on Monday, analysts told Interfax today.

    “Approximately 46% of the country’s zinc smelting capacity lies in tremor-stricken regions, but we won’t know the extent of the damage until a detailed assessment is carried out,” a Capital Futures analyst, named Zhang Lianggui, told Interfax today.

    http://www.resourceinvestor.com/pebble.asp?relid=42761

  5. gonse henri says:

    May 17th, 2008 at 6:32 am

    Hello

    My name is Henri Gonse, I work in the field of aluminum foils for the capacitor industry, I jus came back from China and I am seeking information on the companies which are producing capacitor foils in the area which was hit by the earthquake :
    § LITON plant situated in WENCHUAN COUNTY (ABA Prefecture),
    § HISTAR plant situated in the city of YA’AN
    § AOSTAR ELECTRONICS plant situated in BEICHUAN (MIANYANG CITY)

    Thanks very much in advance ofr all information thzat you could provide me on the status of these 3 alu foil producers.
    With my kind regards
    Henri Gonse

  6. Julian says:

    May 20th, 2008 at 7:14 am

    Nice post, Rich. And great, great job with the volunteer efforts.

    I just wanted to point out that I have done some quick research on the impacts of the quake on energy infrastructure, and have written about it on http://greenleapforward.com/2008/05/20/the-energy-implications-of-the-sichuan-earthquake/

    I wish you and your team all the best, and keep up the great work!

  7. david says:

    May 21st, 2008 at 4:59 pm

    what about polysilicon?
    i see that alot of solar companies are expanding in sichuan province on their polysilicon production plans.
    any insight on that will be greatly appreciated.

    David

  8. Yashiki says:

    February 23rd, 2009 at 10:25 pm

    Could I please have the other impacts on Sichuan, China, for example the social impacts or the environmental impacts?

  9. Yashiki says:

    March 1st, 2009 at 3:54 am

    Why isn’t there any reply? Well, I have got some environmental impacts:
    The earthquake that struck Sichuan Province, was China’s most damaging earthquake since the 1976 Tangshan earthquake disaster. Sichuan, a proice in western China, has been historically known as “Land of Abundance” (Tian Fu Zhi Guo), as it is one of the major agriculture production bases of China. The most immediate concerns after such a disaster are human casualties, injury, and property destruction. However, earthquakes and other natural disasters wreak substantial environmental damage, with consequences for human health and economy as well as biodiversity and resource availability. In China, the environmental destruction is just beginning to be estimated, through some impacts, such as ecosystem degradation and agricultural disturbance, may not be observed for months or years. In addition, rebuilding thousands of homes in a fragile region presents its own challenge to resource management and land protection.
    Some of the environmental damages of the earthquake and subsequent landslides were immediately obvious, and are common environmental threats of earthquakes. In China, the greatest concerns are disposal of debris, ecosystem and habitat loss, water contamination, and destruction of arable land.

    But can someone tell me the social impacts asap….pls!