Quake may put brake on global supply chains

China - 2008 may turn out to be a trying year for China, as the nation battles the effects of the recent quake on spiralling inflation and grain prices, while companies grapple with disruptions in their supply chain.

The quake was devastating in some parts of the nation, damaging infrastructure, hurting the agriculture and manufacturing sector and leaving the nation to face a harrowing death toll.

Analysts, however, believe the overall impact on the economy is expected to be temporary and limited, with the biggest impact likely to be pushing skyrocketing prices of grain higher, while fanning the flames on already high interest rates.

While the quake-hit region of Sichuan is far inland, the area does house many factories. However, the Sichuan and adjacent industrial centre of Chongqing account for only 3.5% of the country's total manufacturing, and a mere 1% of total exports, said Lehman Brothers economist Mingchun Sun.

"While the quake caused significant damages to human lives and infrastructure, we expect its impact on China's economic growth to be temporary and limited," Sun said. "It should be much less than that of the snowstorms in January and February, which affected larger areas and lasted longer."

China's economy slowed only slightly in the first quarter despite being hit by the worst winter in half a century and against the backdrop of a slowing global economy. It expanded 10.6% in January-March, compared to a 11.7% growth logged in the same period last year the National Bureau of Statistics said.

Sun however noted that the quake is likely to "exacerbate panics on rice supply problems, given recent shortages in the global rice market".

Factories, transportation disrupted

News reports have indicated that factories have shut after the quake, amongst which are the manufacturing plants of Toyota and Intel.

Toyota Motor suspended production at its Chengdu factory to inspect the plant for safety problems, said local media, citing company spokesperson Toshiaki Hori.

Chipmaker Intel reportedly also shut a chip packaging factory. Workers have since returned to the plant, Chuck Mulloy told Electronic News, and are on track to begin moving the finished products out of the warehouse in Chengdu. Production is expected to restart on Friday this week.

The disaster also put the brakes on transportation, as it knocked out power grids and forced several aluminium smelting and other production in many parts of the country to halt production due to reduced power concerns. Reuters reported that Hanzhong Bayi Zinc Industry has shut 70% of its 120,000 metric ton annual smelting capacity in China's Gansu province after government officials requested it.