Expect Limited Aftershocks for China’s Economy

Xinhua reports that the disastrous impact of the earthquake that struck Ya’an prefecture, Sichuan province on April 20 will likely have little lasting effect on China’s economy:

“From what we have learnt from the region’s 2008 quake, economic impacts will be limited. Losses in local areas should not be blown up to a disaster for the whole economy,” said Wang Xiaoguang, a researcher at the Chinese Academy of Governance.

[…]More days will be needed to calculate detailed losses, but the figure will be significantly lower than the mightier [2008] quake that jolted Sichuan’s Wenchuan City, which left about 87,000 people dead or missing, according to market estimates.

A Barclays report on Monday projected direct economic losses at about 10 billion yuan (1.6 billion U.S. dollars), much lower than the 845 billion yuan resulted from the Wenchuan quake. The bank has maintained its China growth forecasts.

[…]The economic impact the quake may bring will be like a change from 7.7 percent to 7.6 percent in the country’s growth, said Fanwei, an analyst at the Beijing-based Hongyuan Securities.

More bullish post-quake sentiment was expressed by the Global Times:

“The earthquake will affect market sentiment in the short term but will not trigger a crash or impact stocks in the long term,” Li Daxiao, director of research with Shenzhen-based Yingda Securities, told the Global Times Sunday.

According to Li, the effect of Saturday’s earthquake on the stock market will not be bigger than that of the Wenchuan Earthquake in 2008, when the stock market was going through a bearish phase, compared with the initial stages of a recovery now.

[…]Based on calculations on damage from previous earthquakes, the impact of Saturday’s earthquake on the country’s macro economy will be so small as to be statistically insignificant, [Lianxun Securities analyst] Yang [Xiaowei] said.

The Wall Street Journal focuses in on Sichuan’s local economy, summarizing the economic impact of the 2008 Wenchuan earthquake and showing how rebuilding efforts can be expected to stimulate certain industries:

Sichuan is one of China’s most populous provinces and occupies a strategic location as the gateway to the rapidly developing west. But it still punches below its weight economically, with output of 2.1 trillion yuan ($340 billion) in 2011, equivalent to about 4% of the national total.

[…]Sichuan’s massive 2008 earthquake cratered growth in provincial industrial output to 3.6% year-on-year in May of that year from 24.6% in April. Even then, national output growth was largely unchanged, and by August Sichuan had recovered close to previous levels.

[…]Even if the immediate impact on output is limited, the regional economy could still benefit from the boost given by rebuilding. In 2009, China’s economy was hit by the global financial crisis, with growth slowing to 9.2% from 9.6% in 2008. But thanks in part to the boost to investment from rebuilding, Sichuan’s growth accelerated to 14.5% year on year, up from 11% in 2008.

Another report from the Global Times shows that while stock prices for certain economic linchpins in Sichuan fell after the quake, medical and infrastructure stocks took off:

Sichuan-based distillers Wuliangye Yibin, Sichuan Swellfun, Sichuan Tuopai Shede Wine and Luzhou Laojiao saw a drop in share price of between 2.3 and 2.88 percent.

Emei Shan Tourism also saw its shares fall 2.76 percent, with local tourism expected to be affected after the disaster.

Life and property insurance companies also suffered a slide in share prices, amid a rise in claims related to the earthquake.

[…]But despite the bearish trend, Northeast Pharmaceutical Group and Shandong Lukang Pharmaceutical saw their share prices rise by the daily trading limit of 10 percent Monday, compared with a slight fall in the benchmark Shanghai Composite Index of 0.11 percent.

Another company that saw stock prices take off in the wake of the earthquake was Chongqing Fuling Zhacai Group, who produce the Sichuan-style pickle that Premier Li Keqiang was photographed eating for breakfast while visiting the quake zone. The Wall Street Journal reports:

A photograph of Chinese Premier Li Kequiang’s spicy Sichuan breakfast whetted investors’ appetites for one of the country’s leading pickle companies Monday.

The shares of Chongqing Fuling Zhacai Group Co., one of China’s largest producers of the Sichuan-style preserved pickle known for its spicy, sour and salty taste, soared as much as nearly 7% on a day when the broader Chinese stock market fell on worries over the damage the weekend earthquake would have on economic growth.

State media released a photograph of Mr. Li eating the pickled breakfast in a makeshift tent early Sunday morning in Lushan, the epicenter of the earthquake that has so far claimed 188 lives and wounded tens of thousands of people.

Looking back to 2008, the Global Times warns against the dangerous bubble that speculation in disaster-related industries could create:

Back in 2008, when Wenchuan was devastated by an earthquake that claimed more than 60,000 lives, several influential market players put forward calls not to sell stocks of firms based in Sichuan Province so that these businesses could retain capital for rebuilding. It wasn’t long before sensational rumors also began percolating through the market that several prominent fund managers had received calls from the China Securities Regulatory Commission (CSRC) ordering them to buy stocks in order to keep the market stable. Hordes of smaller retail investors pounced on this seemingly credible “news” and began pouring capital into listed companies that were either based in Sichuan or directly impacted by the disaster. For several days in a row, these stocks shot to the 10-percent daily limit as more and more investors got involved. But when big investors took their profits, the speculative bubble burst and left many retail investors with huge losses.

But more than five years later, similar tricks were on display in the wake of the weekend earthquake in Ya’an county, Sichuan Province. On Monday, stocks of Sichuan-based construction and building material companies saw their prices rally in what was otherwise a mostly down day for the markets. These shares found support on widespread beliefs that post-disaster reconstruction efforts would translate into more orders for these firms, which would of course mean more revenue and profits. Such ideas seemed reasonable on the surface, but just didn’t hold up under scrutiny.

Moving from the financial market back to Sichuan’s local economy, the South China Morning Post reports on a noodle shop in Yingjing county – just south of hard-hit Lushan county – capitalizing on the influx of rescue workers, much to the outrage of locals and netizens:

Chinese internet users said on Tuesday that a noodle shop in Yingjing county had raised the price of its popular tata noodles, a local speciality, to 20 yuan per bowl, from five yuan.

Netizens accused the shop-owners of “immorally” capitalising on the large numbers of rescue workers but doing little to contribute to relief efforts. The workers were enroute to neighbouring Lushan county, but were held back by damaged roads and forced to stop in Yingjing.

Yingjing residents demanded an apology from the shop’s owner. But they were only angered further after the owner shut the doors and “disappeared”.

For more on the 2013 Sichuan earthquake, see prior CDT coverage.