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China Earthquake: The economic aftershocks

Posted May 17, 2008

by J. Christoph Amberger

Baltimore — (TFN): A Chinese friend of mine spent most of last week on the phone, checking up on family. He’s from Sichuan, the Chinese province most affected by last Monday’s earthquake. The death toll is now expected to exceed 50,000. But millions of homes and businesses have not just been destroyed. My friend’s family had no casualties to deplore—but even they have been spending the last week outside, in tents and in cars, as fear of aftershocks have disrupted life all across the region.

Sichuan and the surrounding areas are among the most populous in China. The province has 40 percent of China’s gas deposits and was responsible for over 20% of natural gas output in 2006. It has historically known as the “Province of Abundance,” being one of the major agricultural production bases of China. As the quake affected mostly rural areas, China’s rice and wheat and pork pork output will be severely affected at a time of already tight supplies and rising food prices.

But the province is also rich in mineral resources, especially vanadium, titanium, and lithium, not to mention iron, titanium, and cobalt. The quake also hit Sichuan’s heavy industries—coal, energy, iron and steel—as well as its light manufacturing sector (building materials, wood processing, textiles and electronics).

The total destruction of property and production facilities, the forced idling of industry due to the collapse of infrastructure, and the diversion of a major part of Sichuan’s work force due to evacuations and rescue efforts will most certainly be reflected in the country’s economic growth this year.
Long-term effects on Chinese attitudes

Harder than even the direct economic implications may be the quake’s effects on the Chinese outlook on the future. Popular superstition considers natural catastrophe as an omen for impending change. I remind you of the 1976 earthquake in Tangshan, which killed over a quarter million people and foreshadowed the death of Mao, the fall of the Gang of Four, and the opening of China to the West.

The monolithic political culture in China makes the petty U.S.-style partisan scapegoating along the lines of the post-Katrina period unlikely, but I wouldn’t be surprised if the social and political aftereffects will not have a similarly dramatic effect on China’s distribution of power.

The Shanghai Stock Exchange has lost close to 50% since last October. Its recovery since April has been far less pronounced than that of the American or European indexes. I now believe that the short-term pre-Olympic boom in Chinese stocks that many analysts had been expecting will not take place.

Related TFN Coverage on China:

Gains in Dy-Bulk Shipping

The Silent Collapse of Chinese Manufacturing

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Posted by J. Christoph Amberger · Filed Under International Investing 

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