Storms affect Chinese economy Jan 31, 2008

Storms affect Chinese economy Jan 31, 2008 Imagine the entire population of the United States on the move – all at once. If you can barely imagine this, then come to China for the Spring Festival (Chinese New Year, Feb 7) and you can witness it for yourself – 300 million people, all going somewhere.

Now imagine the worst snowstorm to hit China in living memory and this happening right in the middle of Spring Festival - and you have Chinese New Year, 2008. While the human impact is considerable and should not be understated, the overall impact to the economy is, simply, enormous. Aside from the obvious implications for tourism, so many other industries are also affected – manufacturing, auto-making and agriculture, just to name a few. In fact, the Ministry of Civil Affairs announced on Wednesday that the overall impact to the economy was in the order of US$2Billion.

The eastern seaboard rarely sees snowstorms of this magnitude and for this reason, airports, train stations, bus stations and assorted other transport infrastructure has struggled to cope. Large automakers like Toyota, General Motors, Citroen and Volkswagon who locate in areas along the eastern coast such as Shanghai, Guangzhou and Wuhan have been directly affected. With their just-in-time approach to inventory management, the lack of access to suppliers has meant a number of them have had to close temporarily. Guangzhou in Guangdong province has long been home to Japanese automakers and this province that borders Hong Kong has been one of the hardest hit. While not strictly snow storms in this normally humid part of China, the sleet and rain that have arrived in recent days have also exacted a toll. Honda, for example, suspended some work in its Guangzhou plant on Tuesday and closed another plant in snowbound Wuhan, Hubei Province, on Wednesday.

Chen Xiwen, deputy director of the Communist Party's financial affairs team announced pubclicly that the effect on fresh produce supplies in some parts of the country has been a disaster. Just when prices at market for fresh produce is at an all time high, this must only further exacerbate already upward moving inflation.

Power outages are becoming more commonplace in some of the bigger cities, as the drain on power due to the cold weather becomes more intense. Even the stock market was feeling the effect of the cold weather. The Shanghai Index dropped more than 7% on Monday, moved lower by the concerns investors had over the way particular stocks would be affected by the poor weather. Transport and power stocks were particularly badly affected.

About the Author:

Tim Lyons is Executive Director of Manage China. Manage China is a company that helps foreign firms who are interested in doing business in China. www.managechina.com

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