China’s snowstorms may add to inflation rate

I was acutely aware of the importance of climate when a fierce electrical storm ended my attempt to post yesterday.

The climate has also been wreaking havoc in China. The harshest winter in decades is being experienced by China and the effects of this is being felt in production, shipping, disruption to power, losses in food crops and disruption to transportation. The shortages will add to the already growing rate of inflation in the short term and affect its economy at a time when the world is experiencing the flow through from the economic downturn in the US.

Economic analysts have been speculating on whether China will be able to withstand the downturn of the US economy through growth in its domestic consumption and reducing inflation.

The Xinhua agency reported recently that in 2007 China saw consumer spending up 16.8 percent to 8.92 trillion yuan. It was reported yesterday that “according to data from the National Bureau of Statistics, per-capita disposable income was 13,786 yuan in urban areas last year, up 17.2 percent, or 12.2 percent in real terms, while per-capita income was 4,140 yuan in rural areas, up 15.4 percent, or a real 9.5 percent.” It also reported that consumption is expected to play a larger role in overall economic growth amid tight monetary policy and checked trade surplus increase. What effect the disruption and devastation caused by the snowstorms will have on consumption, remains to be seen.

The harsh winter conditions have interrupted power supplies in central and southern China leading to lowered and even cessation of production in some places. This will, no doubt, have some affect on company revenues. Catherine Jiang of the Asia Times Online quoted the Ministry of Civil Affairs as saying that “the snowstorms have so far caused about 22.1 billion yuan (US$3.07 billion) in direct economic losses. More than 4 million hectares of farmland are affected by the storms, 107,000 houses have collapsed and 399,000 homes damaged, the civil affairs ministry said.”

In spite of the usual spending that the New Year holiday will bring, the interruption to normal production and distribution, along with the scarcity of some consumables as a result of crop failures, make it likely that inflation is set to continue rising and will require further action by the government to rein it in.

It is at times like these that the power of climactic disturbances make their full power felt. Climate change may add just one more uncertainty for those who have to manage economies in today’s world.

~ by abstraktbiblos on Friday, 1 February, 2008.

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