Economic Impact from China's Earthquake

I believe many people will be curious to find out what will the economic impact be on China due to the earthquake of 7.9 magnitude that hit Sichuan province yesterday. Before I attempt to answer this question, here are some facts I know about Sichuan and the messy situation that it is in right now:-

* Epicentre near Chengdu (capital city of Sichuan)

* Chengdu has a population of 11 million

* Chengdu is about 1,500km from Beijing

* More than 10,000 people are reported to be dead(and counting)

* 50,000 soldiers deployed to this province so far

* The earthquake was shallow(ie 10km below the surface) resulting aftershocks that could go on for weeks/months

* mudslides and collapse of buildings especially in the mountainous regions

* economically(agriculture and industrial) not really important to China
* It holds about 40% of China's natural gas reserves and produced about 22% of the nation's output in 2006.

* Most of its power plants, coal plants and railway lines have been shut off completely.

* Aluminium smelters reported little damage.

* Home to 80% of the surviving wild population Giant Panda(approximately 1,200)

Although it will probably take weeks if not months to estimate the cost of damage, economic and business fallout, I am sure the numbers would be in billions of dollars. Not withstanding the loss of tens of thousands of lives and properties, I believe in the short term , there would be some add on effect to the inflation in this region due to supply disruption but the longer term effect is not expected to be long and significant. This catastrophe (in terms of economic effect) I believe should be smaller and contained in the province of Sichuan and nearby counties compared to the Jan-Feb's winter storms which paralysed almost the entire transportation, power and communication lines in 16 provinces including Sichuan. The damage then was estimated to be about USD22b. Government spending to repair Sichuan's cities and rural areas is not expected to be significant compared to GDP(2007's GDP was USD3.4T). The worry right now is whether Sichuan's people will be strong and resolute physically and mentally to overcome the hardship that they are facing. I pray for their quick recovery.

* Kobe's earthquake in 1995 (with 6,500 deaths) cost Japan USD200b in damage or 2.5% of Japan's GDP at that time. It was known as the costliest natural disaster to fall in any one country.

* Shanghai and Shenzen stock markets suspended 66 companies today as the exchanges await the companies to provide them information of the financial effects of the earthquake to businesses in that area. Most insurance companies were sold down eg China Life Insurance fell 7% while construction and building materials companies were up eg China's top cement maker Anhui Construction was up more than 5%. However, on the overall, Shanghai Composite SSEC was down by 1.8% today at 3,580 while HK markets went up 1.9% at 25,553.