Tue, May 20, 2008 - Page 11 News List

Quake expected to trim growth

SMALL IMPACTThe social effects of the Sichuan earthquake will be substantial, but analysts say that the Chinese economy will recover fast and perhaps prosper

AFP , SHANGHAI AND BEIJING

China’s massive earthquake is expected to bring down the nation’s soaring economic growth this year by at least 0.2 percentage points, state media said yesterday.

The May 12 earthquake will lead to a one-month production stoppage and curb consumption in worst-hit Sichuan and some neighboring areas, the China Securities Journal reported, citing domestic economists.

But the impact is likely to be short-lived and the quake could eventually boost investment, a major driver of China’s economic growth, through reconstruction efforts, it said.

“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 (朱建方), an economist with CITIC Securities (中信證券).

China’s economy, the world’s fourth-largest, grew 10.6 percent in the first quarter from a year earlier after expanding by 11.4 percent last year, the fifth consecutive year of double-digit economic growth.

Zhu, who expected the quake to strip 0.2 percentage points off economic growth this year, said the economy would return to normal growth in the third and fourth quarters.

Another Chinese brokerage, BOC International China (中銀國際證券), expected the quake to lower annual growth in GDP this year by 0.4 percentage points to to 0.7 percentage points, the report said.

The direct economic losses caused by the quake will be “much larger” than the fierce snowstorms that hit China in January and February, the report said, citing Fan Jianping (范劍平), economist with the State Information Center, a government think tank.

Sichuan’s GDP last year was 1.05 trillion yuan (US$150.1 billion), accounting for about 4.3 percent of the country’s economy, official figures showed.

Economists note that the financial impact of the disaster would have been much more severe had the earthquake struck the bustling eastern coastal regions, the manufacturing base for China’s lucrative exports.

But even though the overall impact on growth is seen as limited, the earthquake in the heavily agricultural region may prolong a spike in inflation.

The annual growth of the consumer price index (CPI) rebounded to 8.5 percent in last month, after hitting a near 12-year high of 8.7 percent in February but weakening to 8.3 percent in March.

“Post-earthquake reconstruction may add a further increase to investment and economic growth in coming quarters, but headline CPI inflation may also be prolonged by some of the earthquake effects”, said Wang Qian (王黔), a Hong Kong-based economist at JPMorgan Chase Bank.

“We expect monetary policy to stay nominally biased toward tightening, in order to keep inflation expectations in check,” she said in a research note yesterday.

China has raised the amount of money banks must keep in reserve four times so far this year in a bid to curb credit growth and help curb inflation.

But state media has reported that the central bank exempted banks in six quake-hit cities from the latest increase in reserve requirements, effective from today, to help keep money ample for relief work.

ON THE FARM

Meanwhile, the government said last week’s quake killed 12.5 million farm animals — mostly chickens — and wrecked vegetable crops and irrigation systems needed to grow rice.

More than 20,000 hectares of vegetables and more than 10,000 hectares of wheat were destroyed by the quake, the Agriculture Ministry said.

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