Sichuan earthquake likely to aggravate domestic inflation

31 May '08

3 min read

May 12, is going to be considered as the black day in the history of China, as a 7.8 magnitude earthquake struck Wenchuan city, Sichuan Province, at 2.28 PM, and deserted lives of thousands of people.

It is estimated that over 14,200 companies in Sichuan Province and its surrounding areas, were damaged and more than 1,400 of their employees were killed, and thousands are devastated because of this earth quake.

If predictions are to be believed then this calamity is expected to cause a loss of more than 200 billion yuan to the economy of Wenchuan.

This natural calamity has brought a huge loss to the province, as the local industry suffered from incalculable damages. It has impaired the transportation and infrastructure in Sichuan Province.

Now, one thing is for sure, the textile and apparel production bases which were moving from littoral to backland like Sichuan province, will delay their transfer plans.

However, this earthquake would have an insignificant effect on the national production of textile and garment industry as the region has a very small share in the total country's textile industry. Sichuan's economy only accounts for a mere 4.2 percent of the total output of the nation.

On the flip side, market experts fear a secondary consequence of the earthquake on economy of China, which is inflation. In general terms disaster like earthquake lead to inflation from two channels. The debt burden gets accrued by recovery building after disasters which will result in inflation and economic infrastructures in affected areas are damaged, and thus market disturbance will lead to hike in prices of basic requirements like food, building materials and energy.

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