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Earthquake in ChinaImpact on economy likely small
Source: Website Author: Published date: 2008-05-18
Earthquake in ChinaImpact on economy likely small--20080512-Merrill Lynch
Impact of the earthquake on economy: A quick assessment
We think the earthquake today should have much smaller impact on China's
macro-economy than the snowstorm in Jan-Feb, especially regarding CPI
inflation, industrial production and exports. We thus conclude that the earthquake
is unlikely to have significant impact on current macro policies.
The 2nd major natural disaster in China this year
Today around 14:30 Beijing time, China’s Chengdu city in Sichuan province was
hit by the biggest earthquake (with a magnitude 7.8) in China in recent years. This
is the second major natural disaster this year, with more than a dozen regions
including Beijing and Shanghai affected (the first natural disaster is the snowstorm
in Jan-Feb which dealt a serious blow to China’s economy).
Smaller impact on national economy than the snowstorm
Information of casualties and damage is very limited so far. However, we believe
that the earthquake should have a much smaller impact on China’s economy than
the snowstorm happened earlier this year. The earthquake affected less area in
China, and the disaster itself has a short time span.
􀂄 Sichuan province is not a manufacturing center. The province makes up 3.9%
of China’s GDP and manufacturing output in Sichuan is only about 2.5% of the
national total.
􀂄 Little or no major damage to the national transportation system. Unlike the
snowstorm which directly paralyzed some of the most important railways and
highways in China, the earthquake only affected some local transport systems.
􀂄 As an inland province, Sichuan is not relevant for China’s external trade, so we
don’t think China’s exports and imports will be noticeably affected by the
earthquake.
Some impacts on inflation, but not much
We expect the earthquake to further fuel inflationary expectations in some parts of
China due to possible supply shortages as a result of disruption in transportation.
Agricultural production, in contrast, should be little impacted. Compared with the
snowstorm, we believe the impact on inflation is much smaller.
Little impact on currency
We also see little impact on China’s currency because the earthquake took place
in regions almost negligible for China’s external trade. This is quite different from
the snowstorm which affected both Pearl and Yangtze Deltas.
We think the earthquake today should have much smaller impact on China's
macro-economy than the snowstorm in Jan-Feb, especially regarding CPI
inflation, industrial production and exports. We thus conclude that the earthquake
is unlikely to have significant impact on current macro policies.
The 2nd major natural disaster in China this year
Today around 14:30 Beijing time, China’s Chengdu city in Sichuan province was
hit by the biggest earthquake (with a magnitude 7.8) in China in recent years. This
is the second major natural disaster this year, with more than a dozen regions
including Beijing and Shanghai affected (the first natural disaster is the snowstorm
in Jan-Feb which dealt a serious blow to China’s economy).
Smaller impact on national economy than the snowstorm
Information of casualties and damage is very limited so far. However, we believe
that the earthquake should have a much smaller impact on China’s economy than
the snowstorm happened earlier this year. The earthquake affected less area in
China, and the disaster itself has a short time span.
􀂄 Sichuan province is not a manufacturing center. The province makes up 3.9%
of China’s GDP and manufacturing output in Sichuan is only about 2.5% of the
national total.
􀂄 Little or no major damage to the national transportation system. Unlike the
snowstorm which directly paralyzed some of the most important railways and
highways in China, the earthquake only affected some local transport systems.
􀂄 As an inland province, Sichuan is not relevant for China’s external trade, so we
don’t think China’s exports and imports will be noticeably affected by the
earthquake.
Some impacts on inflation, but not much
We expect the earthquake to further fuel inflationary expectations in some parts of
China due to possible supply shortages as a result of disruption in transportation.
Agricultural production, in contrast, should be little impacted. Compared with the
snowstorm, we believe the impact on inflation is much smaller.
Little impact on currency
We also see little impact on China’s currency because the earthquake took place
in regions almost negligible for China’s external trade. This is quite different from
the snowstorm which affected both Pearl and Yangtze Deltas.
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