What Does the Snowstorm Mean?   

Beginning January 12th, southern China, a region close to the equator that typically has a warm winter with a temperature higher than 15 degrees centigrade, suffered a 15-day snowstorm. Seventy seven million people experienced difficulty. Damage to temperate trees and animals has not yet been publicly disclosed. Power facilities were interrupted and roads were blocked. Factories discontinued operation and people lived without normal access to food and power. A loss of RMB110 billion to the national economy has been estimated. Governmental departments have started reconstruction all over the region. Analysts are probing the causes of the freak storm. Some hold that the environment has limited resilience when the economy develops so fast. There is also criticism of the management of the coal supply.
   An official of the National Development and Reformation Commission commented that the snowstorm will neither have heavy impacts on China's economy, nor change the basic development trend. The negative effects have not ended yet. He estimated the impact will not exceed that of SARS in 2003.    
    "Indirect impact is heavier than direct loss," said He Jun, a senior analyst of Anbound Group. "Transportation and delivery networks were damaged, logistics were seriously blocked, both of which will burden the economy. The recovery and reconstruction of highway and logistics system will possibly take months. Losses due to transportation interruptions are predicted to reach RMB48 billion."
   Inflation will be worsened in the short term. Before the snow storm, China was already distressed by inflation. CPI growth in March may hit a new high. According to the Ministry of Agriculture of the PRC, the snowstorm affected 12 million hectares of agriculture plants. Around 2 million hectares of crops are a total loss. Losses in fish, fowl and livestock farming are also heavy.
    "The energy deficit will probably become larger." said He, "Bottlenecks in coal, power, oil and transportation are obvious. The government will clamp down on exports of coal and encourage the import of energy." Some facilities for pumping oil/gas were frozen and inoperative. CNPC estimated it will hence suffer a loss of RMB300 million.
    Estimation of the losses of chemical producers due to the outbreak is difficult to assess so far. CPCIA, the authoritative chemical association in China, has provided no evaluation of the outbreak, other than the total statistics of 2007. The petrochemical and chemical industry of China achieved a total production value of RMB5300 billion with a yearly increase of 22.5%. Total profit is projected to be RMB530 billion, up 21% year-on-year. Investment in fixed assets surged 34% to RMB635 billion. The total import and export value for the petrochemical and chemical industry amounted to US$319.79 billion, a yearly growth of 25% - imports were US$218 billion, up 20.9%, while exports totaled US$101.78 billion, a yearly growth of 34.9%.

Zhong Weike
February 22nd, 2008