‘The Story is Not Over Yet’

Posted by: Bruce Einhorn on February 11, 2008

That’s the conclusion of a team of commodities analysts from Lehman Bros. who have just come out with a report on the economic impact of China’s big freeze. While many readers of this blog seem to think that the international media have overstated the extent of the crisis, the Lehman analysts call the country’s winter crisis “perhaps the most under-reported but most significant event for global commodities this year.” For instance, Chinese demand for gas and diesel will be falling significantly, they say, because of the winter storms. While analysts were expecting a 13% increase in the number of people traveling this Chinese New Year (on top of the 150 million who traveled during the holiday in 2007), “growth now looks flat.” The Lehman report goes on to look at the impact on production of aluminum as well as agricultural production. “The Ministry of Agriculture reports enormous crop losses, and about 10% of agricultural land will not be harvested this year.”

One issue that I hadn’t considered before: The connection between the winter storms and the summer Olympics. The January chaos is likely to slam the economy in the first quarter of the year, fueling inflation and trimming GDP growth by as much as 2 full percentage points. Optimists point out that the impact will be short-term and the economy will rebound quickly. But later in the year the economy might suffer yet another sudden slowdown, this one from man-made causes. The Chinese government is anxious to avoid the disaster of a smog-filled Beijing during the summer games and might shut down factories in order to keep the air clear. According to Lehman, “the government [is] weighing a two-month holiday on industrial production” around the time of the Olympics. The combination of the January storms and the August slowdown could result in stagflation, they warn.

Reader Comments

Steven

February 11, 2008 2:43 PM

Aren't you tired of this?

No one deny the economical loses caused by natural disasters. All chinese don't like to make harsh conclusion that it would cause more political turmoils.

Today, China is acturally more and more open. Even the gov block some websites, but in there were almost all foreign magazines in chinese college libraries more than 20 years ago that Chinese college students can acccess. Chinese who can talk with you in English also understand what is in your mind. WE ARE TIRED OF WESTERN POLITICAL PROPAGANDA. But you, as a BUSINESSweek reporter, even don't understand this. That's a shame for the magazine, of course for yourself too.

I don't know what the 2% growth lose come. Yes, the storm impacted more than 100 million people. But you don't consider:
1. Those are under-development mountainous area, such as Guizhou, southern Hunan.
2.It was before Chinese New year, a slow season for any year.
3. Chinese speed of recovery. Don't think that in US way.
4. This is not a traveling season since new year is a Chinese union time, not a travel time.
5. Crop impacts could be very limited since in the southern mountainous area, wheat are much less important than others.
6. Due to the vegetable price, it will go back quickly, since the price will stimulate production.

Give you some ideas. Don't write your articles in your office without research and investigation.

jcage

February 12, 2008 1:50 AM

Bruce is losing it! His credibility destroyed! His bias and prejudiced finally recognized by his readers!
First, you linked the worst snowstorm in
China with Tianmen Square and failed miserably and now you linked it with the Olympic? What is next? Link it with the second coming or the apocalypsis?
You mentioned that the snowstorm could trim China GDP by 2%, well what is your basis for such as prediction? China GDP in 2006 is $2.6 Trillion and in 2007 is calculated to be $3.4 Trillions, yes, 3.4 Trillion due to 11.5% growth and the Yuan appreciation against the $ so a 2% trimming that mean that China economy will lose by $680 billions! Wow! How did you come with such as number? Situation in China is recovering from the snowstorm and life is going back to normal. It would take time and that is! Now, the slowdown could be caused if the USA goes into recession and that could affect China and the whole world!


Now, for the Olympic event, China would close most of the steel, aluminum, cement industries (high energy and polluting industries) around Beijing and that does not translate in cutting electricity or temporarily closing other industries such as semiconductor, car, biotech, light industry or power generating plan. Bruce, the Olympic need electricity so Beijing won't shut down the power plant even the coal powered one!

bob

February 12, 2008 2:50 AM

I find Bruce become more and more naive and simple minded. The Beijing Olympics will bring a big boom to China's economy in terms of tourism, restaurant and entertainment business. The temporary shut down of heavy industry in Beijing will bring very small negative effects comparing to the big boon above. And right now there are very few heavy industry establishments left in Beijing, so I really don't think it will impact a big deal.
Frankly, I really think Bruce's mindset and judgments become more and more amusing.

Joe

February 12, 2008 9:46 AM

Steven, give Bruce a break. This time, he just regurgitated the guesstimation from his Princeton pals now working in Wall St.

It's called friends help friends......

jcage

February 12, 2008 6:04 PM

Bruce, here is the news of a snowstorm in the American Midwest. There are 1000's of people without electricity, business and transportation paralyzed due to the snowstorm. However, you might notice that the reporter just inform the public and he did not connect this snowstorm with any political agenda like you did in many of your articles for BW. Learn to accept your mistake and be professional since that what you are being paid for!!
Read it!
http://news.yahoo.com/s/ap/20080212/ap_on_re_us/winter_weather
Storm hits Ohio Valley with snow and ice

By WILL GRAVES, Associated Press Writer 2 hours, 7 minutes ago

LOUISVILLE, Ky. - Snow and ice spread across the Ohio Valley on Tuesday, closing schools, knocking out power for thousands of homes and businesses and collapsing a bakery roof.
ADVERTISEMENT

Roads were littered with cars that had spun out and first lady Laura Bush canceled appearances.

Freezing rain created a layer of ice on top of 4 inches of newly fallen snow in Kentucky. In southern Illinois, ice was an inch thick at Pinckneyville and Carterville had 8 inches of ice-covered snow and sleet. The Pittsburgh area had up to 5 inches of snow by early afternoon and an additional 3 inches was possible, the National Weather Service said.

The weather system was moving along a line stretching to the northeast, and the weather service posted winter storm warnings along a band from western Tennessee into New England.

Schools were closed in parts of Kentucky, Illinois, Indiana, Ohio, West Virginia and Pennsylvania.

The National Park Service canceled a 199th birthday event at the Abraham Lincoln Birthplace National Historic Site in Hodgenville because of the treacherous driving conditions.

First Lady Laura Bush canceled a planned trip to central Kentucky to attend the Lincoln event and to visit a school damaged by last week's severe storms, said Bush spokeswoman Sally McDonough. She also called off a visit to towns struck by last week's deadly tornadoes in Arkansas, where rain turning to sleet was expected across much of the state.

Heavy snow and ice collapsed the roof of a bakery at Herrin, Ill., though no injuries were reported, authorities said. And in nearby Carterville, the storm knocked out WSIL-TV's main transmitter.

Utilities reported more than 16,000 homes and businesses blacked out in Kentucky, with about 8,000 in Missouri and thousands more in southern Illinois.

"As the ice continues to weigh down on tree limbs, those limbs are falling down on power lines and taking customers out faster than we can restore them," said Erica Abbett, a spokeswoman in Illinois for the utility Ameren.

Highways near Louisville improved Tuesday morning after a night in which dozens of cars were abandoned on freeways. A section of the Western Kentucky Parkway was closed during the night by trees that fell under the weight of ice, state police said.

Two people were killed when a car slid off an icy highway in western Kentucky, state police said.

Indiana State Police closed a five-mile stretch of icy southbound Interstate 65 south of Indianapolis for part of the morning because of wrecks, and Illinois police reported dozens of accidents.

Tuesday's high school basketball playoffs for western Pennsylvania were postponed because of 5 to 8 inches of snow forecast for the region.

jcage

February 13, 2008 7:44 PM

Bruce simply does not know what he is talking about! Stagflation, Tianmen Square, snowstorm, 2% GDP reduction, International press... in other word, the sky is falling for China!

Spreading fear and terror! Bruce a scaremonger!

Please provide us real data on your assertion about the 2% GDP drop for China and I am not talking about SWAG or Scientific Wild Ass Guess! I would like you to provide to your readers and doing a favor to BusinessWeek by providing hard data and fact to back your assumption for China stagflation and 2% GDP drop for this year 2008! It is time for you Bruce to put up or shut up!

Steven

February 15, 2008 12:01 PM

One more bad news for you: China exported US$ 51.9 billion goods in January, a 33.2% jump over the same period of the last year, imported US$45.65 billion, grew 42%.

Most of the storm happened in January.

Sorry for you.

A Reader

February 17, 2008 10:03 AM

JCage....2% of $3.4 Trillion = $680 Billion!!!! which school did you go to.

The total economic impact of about $68 billion looks quite reasonable I'd say OR $680 per person (assuming 100 million people affected). Is Bruce really off the mark?

A Reader

February 18, 2008 12:15 AM

There's something called 'delay'.

Just because the storm happened in January, its impact will not be felt in January. It would possibly be 6 months (probably more) before the numbers start showing up...

Singha

August 13, 2008 4:49 PM

Dear Bruce Einhorn

The below report from BusinessWeek does not agree with your report.
It states that Beijing Olympic should not affect Chinese economy since Beijing contribution to China GDP is only 0.3% so I don't where you get the 2% drop on the Chinese GDP.
Here is link
http://www.businessweek.com/globalbiz/content/aug2008/gb20080813_511418.htm?chan=globalbiz_asia+index+page_top+stories

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