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Limited impact caused by the quake

By Liang Da (China Daily)
Updated: 2008-06-02 09:53

The devastating May 12 earthquake in Sichuan province is already taking a severe toll on the provincial economy, but the trend will not last as long as many analysts have predicted.

More than that, from a long-term perspective, both the local and the national economies will eventually get boosts from the massive reconstruction work.

The latest statistics show the quake is expected to cause total economic losses as high as 200 billion yuan within Sichuan.

But the impact will be temporary and will not spread across the whole nation if Sichuan's current economic position and its industrial structure are taken into account.

Across the country's provinces, autonomous regions and municipalities, Sichuan province ranks third by population (86.73 million) behind Henan and Shandong. But in terms of its GDP, it is in ninth place, contributing 4.2 percent to the nation in 2007. As for the industrial output value, Sichuan accounts for 3.7 percent of the nation. Its annual exports make up a tiny 0.6 percentage.

If Sichuan's neighboring areas involved in the quake including Gansu, Shaanxi, Yunnan, Chongqing, Shanxi, Guizhou and Hubei are included, the total GDP of the eight areas accounts for 18 percent of the nation. Therefore, in some sense, the direct negative impact that the earthquake has on China's economic growth might be no more than that from the 2008 Spring Festival blizzard that struck comparatively economic developed areas of Southern China.

The prediction about the limited influence also comes from the geographic scope of the earthquake.

Much of it was in the province's poverty-stricken areas - not in the major agricultural areas. This results in a comparatively weak impact on agriculture, Sichuan's pillar industry, which annually contributes 20 percent to its GDP, higher than the nation's average which stands at 11 percent.

Every year, the agriculture output volume from Sichuan makes up 6.1 percent of the nation, with 7.3 percent and 11.6 percent of the nation's rice and pork coming from the province.

Based on the experiences gained from the large-scale natural disasters that happened with China, such as the flood crisis in 1998 and SARS in 2003, a conservative forecast about the Sichuan earthquake is the provincial economic slowdown will mainly show up through the whole second quarter, and the economy will rebound, or even gain a robust growth in fixed-asset investments, in the third quarter and fourth quarters.

Fortunately, the quake reconstructions currently under way will probably be blessings for both the local and national economies in the long run.

On May 21, the Chinese government announced it was establishing a reconstruction foundation in a bid to help the residents of the quake-battered areas go back to lead normal lives as soon as possible. The government will be injecting funds worth 70 billion yuan this year and add more in the following year.

The majority of the funds will be used for rebuilding infrastructures including roads and residential properties. With the help of the international aid and new technologies, the reconstructions will be not only earthquake-resistant, but more importantly, also conform to international standards.

The improved infrastructures, will add glamour to the province of Sichuan and the whole western area of China which has been undergoing economic reform but is bottlenecked by poor local infrastructures that has slews of both foreign and domestic investors going to the country's western regions instead.

For the whole nation, the growing demand for accommodations, telecommunications and entertainment from the millions of survivors will rapidly drive up China's domestic consumption in a short time. As such it will temporarily ease the nation's headache caused by the slackening exports.

Another benefit is China can use the opportunity to build a service-oriented - or more efficient and cleaner - government as it has promised, because the reconstruction efforts will better utilize governmental expenditures and lead to a reduction of administrative fees spent by the authorities.

The problem of extravagant administrative fees has been a most difficult nut to crack during governmental system reform. But on May 12, the State Council announced it would reduce about five percent of the administrative fees this year including those spent in conferences, accommodations, business travel, inspections and transportations, and all the savings will be put into quake-related reconstruction.

In a word, this year, the Chinese economy will be slightly affected by the earthquake, but the growth rate will sustain as expected, remaining at no less than 10 percent, and the growth of CPI (consumer price index) will fluctuate at around six percent.

The author is a senior expert with the National Bureau of Statistics. The views expressed in the article are his own.