Economic impact of the earthquake in China
June 3rd, 2008 by AdministratorThe world has been riveted by the tragedy that struck Western China several weeks ago — the earthquake centered in Sichuan province. At the time of this writing, the death toll is well over 60,000, and there are tens of thousands still missing. Millions of people are homeless and many of these people come from regions of China already just barely scraping by. Those of us in China have been spending all of our free time — and some of our work time — scanning the news for updates on the situation there. The entire country is in mourning.
Once the dust (literally) settled and the quake’s initial, awesome toll on human life was better known, many of us here have been asking about the longer-term impact of the quake on China’s economy and society. We were asked by a U.S. based think tank to provide a perspective on this and I thought I would share that with you.
In short, the government here is being very careful to say that the earthquake will not fundamentally affect the Chinese economy; however, some observers estimate that the earthquake might reduce China’s 2008 GDP growth rate by half a percentage point.
The province of Sichuan, where the earthquake was centered, contributes some 3% to China’s total GDP. The specific region impacted by the quake contributes about 50% of Sichuan’s GDP. Since Chengdu, the capital of the province and Mianyang proper, two major urban centers in the regions, were not severely impacted, disruption to China’s economy will be minimal in our view (though fixed asset losses are huge).
China’s Premier Wen Jia-bao, who has been personally involved in the post-quake rescue and relief efforts, announced last week that total government spending would be reduced 5% in order to divert those funds to the relief efforts. Wen specifically said that government bodies should reduce travel and entertainment expenses. In other words, the government is taking this all very seriously and, though we feel the economic impact on the whole of China will be quite small, the relief efforts certainly are taking a large share of the government’s focus, the impact of which remains to be seen.
