HONG KONG - China's farmers and industrialists are counting the cost of the
country's worst floods in a decade as the toll of dead and missing people
climbs past 1,550. Up to 137 million people have been affected and waters have
swamped more than 9 million hectares of crops, according to the State Flood
Control and Drought Relief Office.
Direct economic losses have so far been put at 200 billion yuan (US$29.5
billion) and at least 107 million homes in central and northeast China have
been destroyed, almost triple the cost and 50% more destruction than in any
year since 2000. The ministries of Civil Affairs and Finance have so far
allocated 1.1 billion yuan to
help people living in disaster-hit areas with basic living expenses, according
to the China Daily. More than 36,000 tents, along with bedding, have been sent
to affected areas.
Premier Wen Jiabao, who late last month said the country was at a "crucial
stage" and told local authorities to prepare for "more serious flooding and
disasters", on Tuesday again urged local governments to step up their
anti-flooding efforts. Water at the Three Gorges Dam, the world's largest
hydroelectric project, on the Yangtze River in Hubei province, remains near a
critical level.
Farmers and agriculture have felt the brunt of the damage, driving up food
costs with a knock-on effect that could strengthen arguments for higher
interest rates to hold back inflation. Annualized inflation as measured by the
consumer price index (CPI) could rise to between 3.4% and 3.7% by the end of
2010, compared with 2.9% in June and the consensus estimate of 2.8% for
December, according to Credit Suisse economist Dong Tao.
Tao said grain production would decline 2% this year due to the floods and the
earlier winter drought, while "hot money" had been used to buy up physical
agricultural products, "making it difficult for the state agency to purchase
grain from farmers", he said.
The retail prices of meat and vegetables increased in July and Credit Suisse
expects this trend to continue.
The People's Bank of China, in its quarterly "Analysis of the State of the
Chinese Economy" published on July 27, warned about rising food prices and the
consequences for CPI inflation, echoing the Credit Suisse view that higher food
costs and rising wages would make CPI inflation stubbornly high, Tao said. He
believed that interest rate increases could not be ruled out.
The damage to industry is also widespread, and while the number of family
businesses that have been destroyed may never be tallied, listed companies are
starting to itemize the damage they have suffered.
Shanghai-listed Fujian Sunner Development Co, which supplies chicken to
fast-food giant KFC, said many of its chicken farms were flooded at an initial
estimated loss of 30 million yuan. Discussions on compensation are being held
with insurers. Storm damage halted operations at some of Shenzhen-listed Fujian
Nanfang Textile's nine plants around the country, at an estimated loss of 430
million yuan.
In Jilin province, bordering North Korea, floodwaters gushed into the plant of
Shanghai-listed Jilin Power Share on Tuesday night and destroyed its
facilities, causing an estimated loss of 10 million yuan. Flood damage at two
plants run by Jilin Zixin Pharmaceutical Industrial caused two million yuan of
damage, the Shanghai-listed company said.
More than 592,000 Jilin residents have been evacuated over the past week as
rains and landslides left at least 120 people dead or missing. About 37,000
houses have collapsed and 125,000 others have been damaged. The National
Meteorological Center predicts more heavy rain for northeast China through
Thursday, with no letup in Jilin expected until Friday.
Even where factories have not been directly hit, their logistics have been
disrupted by the destruction of roads and bridges. Travel was halted at various
times on 16 provincial highways, from central Chongqing municipality and Hunan
province to southwestern Sichuan province and coastal Fujian. At one point, all
trains to and from Chongqing, an industrial metropolis that is home to
international companies such as Intel and Hewlett-Packard, were suspended. In
mountainous Luanchuan county in Henan province a 200-meter-long bridge
collapsed, killing 51 people and leaving 15 others missing.
Taiwan-listed Taiwan Cement, which operates plants in Guangdong and Guangxi
provinces, said logistics operations took a hit as swollen rivers hindered
shipping. Taiwan Cement, whose chairman and president Leslie Koo in February
announced plans to expand his company's mainland operations, said shipments
were at about 70% to 80% of the norm.
Vessels have been barred from going past the Three Gorges Dam at least twice in
the past few weeks, at one point stranding around 100 boats on each side of the
dam. The water level in the reservoir behind the dam at one point rose to a
record high of about 160 meters, within 15 meters of its 175-meter maximum.
Shanghai-listed Fujian Cement said work at construction sites had come to a
halt because of the rains, but it declined to say how much the loss incurred.
Still, when the waters recede, benefits from the flooding will flow to the
likes of Fujian Cement and Taiwan Cement, which expect demand to surge as
reconstruction of houses, bridges, irrigation conduits and other infrastructure
gets underway.
Pingan Securities said the food, water, medicine, cement and infrastructure
sectors should present investment opportunities in the aftermath of the
summer's disasters.
Nor might inflation be as bad as Tao fears. While the flooding has pushed up
grain and vegetable prices, "we do not believe it will exert significant
pressure on inflation in the long run," China International Capital Corp (CICC)
said in a report which maintained CICC's full-year CPI inflation forecast at
below 3%.
"Fears have arisen over a repeat of the 1998 floods, but the precipitation on
the Yangtze River this year is 20% less than that of 1998 ... Besides, the
overall CPI and food CPI did not rise sharply with the 1998 floods," CICC said.
The floods of July and August 1998 killed 3,004 people and inundated 21 million
hectares, causing 255 billion yuan of damage, according to Xinhua News Agency.
Much will depend on the autumn harvest. "The summer grain output accounts for
only less than one third of the total national output, while the autumn
production accounts for the other 70%, thus dictating the full-year yield," the
CICC report said.
"The total rice supply ... will support two months of national rice
consumption," and after six years of "bumper harvests" the government's grain
inventory is "far above" the international warning level and the size of
reserves should help to reduce the likelihood of sharp price rise, the report
said.
Olivia Chung is a senior Asia Times Online reporter.
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