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China's economic worries
CNN's Stephen Frazier asks Dong Tao of Credit Suisse what ecomonic impact the winter storms will have on China.
I think in general, the industrial production and agricultural productions are most affected by this. Among all of these things, I think the industrial production probably would recover once the bad weather is over. But I think the agricultural production will be affected and the summer crops in China probably will see a significant damage, given that one tenth of the Chinese farming land were affected by this snow storm.
One tenth of the farming land, I mean, think of the acreage there, and we are also getting reports that it’s not just the crops out in the open, that greenhouses are collapsing and that smaller barns are buckling under the weight of the snow. This is in areas that don’t normally see this kind of weather, isn’t it?
Well, this is not the biggest snow-storm in China, but definitely this is the worst snowstorms in China’s modern history. The reason is that the snowstorms came to southern China, south of Yangtze River area. These areas rarely see any snow and this time we are seeing about 20-60 centimeters of snow coming in, in couple of er, weeks. And the situation is still developing, uh, this might not be the end yet.
What do you think this will mean for the price of food then, especially for vegetable crops, for example?
There are two elements of that. One is the short-term. When the bad weather comes, the food prices go up. We’ve already seen about 7-10 percent of food prices going up in many cities in China. But that’s kind of bad weather induced. The other part of that will be the long-term. In the air with that because of the food supply will be damaged at least for this year so that the food prices which has been a major factor behind China’s inflation will continue to go up. This will add a lot of pressure to the Chinese government and this also might have some implications to the global grain market.
Let’s talk briefly. We are almost out of time about the implications for the economy as a whole. I mean, China has been on a thirty-year reform program to make it this export power house. But it’s really very fragile in some ways and this is another example highlighting that. I can remember the diesel fuel shortages just a few months ago that pointed that out. But this seems to be even more dramatic.
Well, bad weather happens here and there. And that alone doesn’t probably, probably doesn’t have anything to do with China’s reform process. So when we have the hurricane in the US, we probably have the similar kind of impact. Whereas this matters is the Chinese economy is in overheating situation, the government's trying to hit the brake. And now with the inflation going up, food supply going down and power shortages, these things could affect the Chinese decision-makers' mindset.
Notes:
Barn: A large farm building used for storing farm products and sheltering livestock.
Buckle: To cause to bend, warp, or crumple.
