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Tsunami to have negligible impact on Chinese economy
22
Mar '11
Japan's devastating earthquake and tsunami have caused massive damage to the country's as well the world economy but will have negligible effects on China's economy in long run.

It is expected that the earthquake will have an impact on only imports from Japan, thereby creating a supply shortage in short term.

Japan is China's third largest trading partner country, so effects of devastating earthquake and tsunami are inevitable. But these effects will not hamper the Chinese economy in long run because of large trade deficit with Japan.

Though China enjoys broader and closer economic ties with Japan, there is a large trade deficit between two countries. In 2010, China exported goods and services worth US $121.06 billion to Japan while China spent US $176.71 billion on imports from Japan with trade deficit as high as US $55.65 billion.

Considering, this trade deficit, the earthquake will have very limited impact on China's economy barring supply shortage in the short term.

As Japan is one of the most powerful countries in industrial development and also in exports in the world, the world economy has been affected badly due to earthquake in Japan. But Japan has started a damage control exercise and it will show results in long run.

Japan has announced a big stimulus package for its economy and may further ease monetary policy to improve international monetary environment. This step will increase inflationary pressure but will improve the situation.

In financial markets, the yen is expected to go upward showing short-term appreciation. Japanese insurance companies are expected to sell some assets to raise indemnity for insurance claims resulting in short-term decline of international stock markets. As a counter effect, the yen may get stronger giving periodically return.

In commodity markets, because of drop in demand in short term, prices can fall for a while, but in the long run, it will witness an upward trend. Once the reconstruction starts, demand will increase resulting in higher commodity prices.

Fibre2fashion News Desk - India


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