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SHANGHAI: The huge earthquake in southwest China could drive up food
prices even more and set back efforts to tame inflation, experts
warned Tuesday as stocks slid here in the wake of the deadly tremor.
The economy of Sichuan province is likely to
take a heavy blow from Monday’s 7.9-magnitude tremor, which left
tens of thousands dead, missing or trapped, although reconstruction
efforts should later boost growth, experts said.
“The earthquake will have a severe negative
impact on the economy of Sichuan,” said Zhai Peng, an analyst with
Guotai Junan Securities.
The Shanghai composite stock index ended down
1.84 percent amid worries about the quake, with trading in 66 listed
companies based in southwestern China suspended due to difficulties
contacting their headquarters.
But although parts of China have been badly hit,
analysts said the overall impact on the industrial sector looked
likely to be limited as the worst-affected region is more dependent
on agriculture than manufacturing.
“While the quake caused significant damages to
human lives and infrastructure, we expect its impact on China’s
economic growth to be temporary and limited,” Lehman Brothers
economist Mingchun Sun wrote in a research note.
The tremor could, however, “exacerbate panics
on rice supply problems, given recent shortages in the global rice
market,” the analyst added.
China’s economy has enjoyed double-digit
growth for five consecutive years. With inflation already close to
12-year highs, the main threat to its booming economy from the quake
could be rising prices, analysts said.
“It’s obviously going to exacerbate
short-term inflation pressures because there’s been disruption to
supply chains and it’s a fairly agriculturally heavy province,”
said Glenn Maguire, chief economist for Asia at Societe Generale.
China has hiked interest rates and the reserve
requirement ratio for banks a number of times to curb inflation and
prevent economic overheating.
Even so Chinese inflation hit 8.5 percent in
April amid surging food prices.
The country’s communist rulers have made the
war on inflation one of their top economic priorities, fearing
rising prices could hamper social stability. Analysts said the
massive tremor would set back those efforts.
“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,”
Merrill Lynch economist Ting Lu wrote in a note to clients, warning
the temblor would be “a serious blow to China’s economy.”
But he said that the overall economic impact
could be smaller than that of the snowstorms that paralysed large
parts of China over the winter.
“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,” he added.
Analysts noted that major natural disasters can
actually be positive for the local economy in the longer term due to
reconstruction spending.
“Given that government policy in the past five
years has been aiming to accelerate development in the central and
western provinces, you probably will see funds mobilised and
rebuilding commencing very quickly,” said Maguire.
Chinese authorities announced an initial
allocation of 200 million yuan ($29 million) of relief funds.
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