cybertrader

[humle]

Focus - The Sichuan Earthquake

Report summary:

China Quarterly Update
The global slowdown has started to affect China’s growth. High food and commodity prices keep inflation elevated, while record external surpluses challenge China’s monetary and exchange rate policy. More
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CHINAEXTN/0,,contentMDK:21809870~pagePK:141137~piPK:141127~theSitePK:318950,00.html

A live online chat with Louis Kuijs, Sr Economist and author of the report, will be scheduled soon.

Related conversations:
New Bank report confirms East Asia remains robust amid global slowdown
Sichuan earthquake leaves migrant workers worrying about left-behind children

From the China Quarterly Update, June 19, 2008

On May 12, 2008 an earthquake of magnitude 8.0 struck southwestern China with the epicenter in Wenchuan County of Sichuan Province. This occurred 57 miles northwest of Sichuan's capital Chengdu in the middle of the afternoon when public buildings and offices were fully occupied. Tremors were felt throughout Asia. More than 30 aftershocks occurred.

An estimated 34 million people have been affected by the disaster. Fatalities have risen to 70,000, around 18,000 people are still missing, and 374,000 have been injured, and more than 5.7 million people have been evacuated from their homes. Six Provinces were affected by the earthquake: Sichuan, Gansu, Shaanxi, Henan, and Yunnan, and Hubei. The mountainous topography of the affected area makes transportation difficult and access challenging.

The damage to the affected area is very serious:

Agriculture: more than 30,000 hectares of farmland, 100,000 hectares of rice paddies, and a large amount of farming facilities—including more than 30,000 farm machines—were seriously damaged. The quake also destroyed 7,635 kilometers of irrigation canals, affecting crops on nearly 224,000 hectares of farmland.

Water and Sanitation: Destruction of 88,615 source facilities affects 3.6 million people in Sichuan. Authorities warn of contamination of drinking water in quake zones due to the presence of dead bodies, medical waste and the repeated use of disinfectants and plague prevention drugs. Overall 7,800 km water pipes were damaged in the quake. The water supply network in urban areas of the quake zone has been badly damaged, leaving 1.1 million people completely cut off, while damage to tanks and water treatment works affect millions others. 21 massive landslides have dammed rivers. 34 quake-formed lakes pose a risk, 7 have been controlled. The most risky Tangjiashan quake-created lake near Beichuan County has stored about 113 million m3 of water, and 30,000 nearby residents have been evacuated. Downstream floods may also occur when water begins to cascade over the top of dams. All quake lakes are monitored around-the-clock to assess their flood risks.

Housing: Sichuan Provincial Government reports that 5.5 million houses have collapsed and that another 5.9 million were severely damaged. This has made millions of people homeless. In addition, afraid of after shocks, many people are reluctant to return to their apartments.

Infrastructure: More than 21 million buildings are damaged in the earthquake-affected areas. The damaged power transmission lines add up to 1,978 km. Nearly 2,300 dams—including two large ones and 28 medium ones—were damaged. The quake has wrecked 22,000 km of road and tunnels, affecting 21 expressways, 15 inter-provincial highways and 2,756 rural roads.

Impact on China’s economy

Although the damage to the affected area is huge, the affected area accounts for only a small part of China’s economy. Preliminary estimates put direct damage and losses from the earthquake at RMB200 billion (US$28.8 billion), with indirect damage much higher. This is equivalent to 0.7 percent of China's GDP. What is distinctive about the earthquake is not the overall amount of damage, but rather its extreme concentration in a small area.

In the face of this kind of natural disaster, China is fortunate to have a large and diverse economy that can continue to function well and that can finance quick reconstruction in the affected area. Central and local governments have allocated RMB 70 billion (US$10.1 billion) of this year’s budget for the establishment of a reconstruction fund for the quake-hit regions. The Chinese government disaster relief fund has increased to RMB 23.1 billion (US$3.4 billion). Domestic and foreign donations to China's quake-hit regions have reached RMB 43.7 billion (US$6.2 billion).

All of this relief and reconstruction funding is additional demand in the economy. Because inflation has already been running at about 8 percent, it is important to offset this additional demand somewhere else in the economy. The central government aims to slow down other public spending to accommodate the earthquake reconstruction, and has called on provincial governments to participate in this effort. If the central authorities are concerned this initiative to contain overall fiscal spending may not work, a complementary measure would be to allow further monetary tightening.

World Bank assistance

In the aftermath of the earthquake the World Bank offered China a $1.5 million grant to support technical assistance for the reconstruction effort. The Bank also mobilized a team of international experts, many with experience in other recent earthquakes such as Turkey, Gujarat, and Aceh. On June 12 this expert team met with counterparts in the central and local government charged with planning the reconstruction effort. The state council has set up nine working groups focusing on different areas. The Bank will be providing technical support to the groups working on infrastructure, social sectors, and economic recovery.