04 February 2008 14:23 [Source: ICIS news]
By John Richardson
“Our government has taken immediate and extensive action to rectify the problem and there will be no impact,” said one.
He may turn out to be right, but it seems highly unlikely.
Exporters were already suffering from lower growth due to the
Now they have been hit by
There were reports on Monday that the weather conditions might ease thanks to rain that would thaw the snow. Hundreds of thousands of passengers, who had been stranded at
Economists believe that the crisis could shave between 0.2-0.5 percentage points off GDP growth.
In normal circumstances, the bad weather might have been viewed as a blessing in disguise by the central government as it continues its three-year long so far unsuccessful battle to cool down the overheated economy.
But the foul weather comes on top of other economic problems.
Even before large swathes of
Now some economists are suggesting that growth could even fall below 9% in 2008.
As one Chinese government official was once famously quoted as saying: “The Chinese economy is like an elephant riding a bicycle. The elephant has to peddle very hard to avoid falling over.”
The point he was making was that
World Trade Organization-stipulated reforms - and perhaps now increased environmental protection resulting in factory closures and extra costs to businesses - are costing jobs.
There is also constantly accelerated urbanisation, creating pressure for towns and cities to keep booming to generate sufficient work for migrants.
The numbers from the export sector are worrying. For example, the Purchasing Managers’ Index fell to 53 last month from 55.3 in December on the weakening in the global economy, the appreciation of the yuan and export-tax credit cuts.
The index was assessed before the bad weather struck and so a further decline seems likely.
Some analysts are predicting that growth in the trade surplus could be zero in the first quarter compared with 12% in the fourth quarter of last year. This might ease trade tensions with the west, but would a big blow to all the chemical exporters to
The government has responded by ordering financial institutions to provide businesses and individuals affected by the weather with emergency loans.
Credit in general is forecast to be easier to obtain as
Looser credit could make inflation worse - the other big economic problem confronting
Inflation hit an 11-year-high in November of 6.9% on soaring food and fuel prices, but slipped back slightly in December.
Jun Ma, again before the bad weather, was predicting that inflation would be around 7% in January.
The disruption to food supply is bound to drive inflation much higher than 7%. An early indicator of this came from the Agriculture Ministry’s basket of food prices, which rose by 11% in January.
As much as 10% of crops could be lost as a result of the weather that’s temporarily taken as much as one-third of agricultural land out of production.
The same is true for the chemicals industry as for the wider economy.
The freak weather conditions occurred only shortly after predictions were issued of lower growth in 2008.
Demand growth for the five major polymers was forecast to drop to 7.7% from 8.3% with polyvinyl chloride (PVC) recording the biggest fall of 3%.
The reasons given for the lower projections were, yes you’ve guessed it, the
The yuan rose in value by 7% last year. But the rate of appreciation could slow down if the government switched its focus from fighting inflation to economic stimulus, with the flipside again being the risk of even higher inflation.
At least the bad weather could not have come at a better time of the year for industrial production as many factories were already idle, or running at low capacity, in the build-up to the new year.
Some of the more optimistic economists, along with my patriotic contact, believe that as the crisis occurred at a time of low industrial production and demand, the economy will quickly kick back into gear.
But high inflation could linger as it has been driven by high food prices that are not just the result of bad weather.
The other cause of the rise in inflation has been expensive crude oil.
Crude prices might fall on lower global growth, which would be good news for inflation, for
The state-owned refiner and petrochemical producer has suffered from a refinery margin squeeze because of the rise in crude costs and refinery-product price caps imposed by the government.
The threat to confidence - the great intangible - is perhaps the biggest danger of all.
Confidence in the global economy was already at a seven-year low before the bad weather arrived and so, in this respect, the timing of the heavy snow falls could not have been worse.
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