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China Quake Notes

By  May 20, 2008

Topics: Global Business, Politics

Aftershocks continue to pepper the area – more than 20 of 5.0 or above on the Richter scale. 
The death toll will continue to climb and will surely top 50,000. The official death toll is likely to significantly understate the real total.
Potential threats continue to loom:
1. Several nuclear facilities are in the area.  China has a research reactor, two nuclear fuel production sites and two atomic weapons sites in Sichuan, according to a French nuclear watchdog. All were 40 to 90 miles (60 to 145 kilometers) from the epicenter.
2. A number of dams have suffered cracks and run the risk of collapse.   People have been evacuated.
3. Landslides have dammed some portions of the river, raising flood possibilities
4. Unsafe food and lack of access to safe water, facilities for personal hygiene and safe sanitation arrangements all create a real risk of outbreaks of infectious diseases.   (Diseases often kill more people than the natural disaster itself.)
The biggest economic impact is likely to be an increase in inflationary pressures.
1. Sichuan is an important agricultural province, providing about 6% of China’s grain output while 12.5 million head of livestock were lost, mostly poultry.   With food inflation already troublesome, this can’t help.
2. Possible supply shortages may also result because of disruptions in transportation and create bottleneck inflation
The economic impact on China’s manufacturing base is likely to be small because Sichuan province is one of the poorest and least developed areas of China. 
1. Toyota Motor, and Yamaha Motor, are among the companies that have suspended operations at their factories in Chengdu, the capital of Sichuan province, while they inspect the damage caused by the earthquake.
2.  Before they can resume production, many factories need a restoration of electricity and water supplies. Sichuan province lost 4 gigawatts of electrical capacity while neighboring Shaanxi province lost another 1.5 gigawatts after the earthquake knocked out 10 power stations and transformers in the two provinces, according to State Grid Corp. of China.
The political impact may turn out to be large depending on several things:
1. How the government handles the disaster relief efforts.   This could be the Communist Party’s version of what Katrina did to the Bush Administration.  So far, the government gets relatively poor marks on allowing foreign experts to swiftly enter the relief zone with high tech equipment used to find survivors.  This slow response has probably cost thousands of lives because survival is very difficult after the first 72 hours.
2. How many of the deaths and injuries are due to faulty construction of buildings because of government corruption.  This is very volatile as many of the victims were school children learning in buildings “made of tofu.”
Perhaps the only good thing about the quake for China is that it has helped shift world opinion away from Olympic protests to sympathies for the Chinese people – an unintended “wag the dog” event orchestrated by Mother Nature.