TRANSCRIPT: The economic effects
of the big Sichuan earthquake disaster; Bear market
rally but Chinese stocks still down overall; China
to challenge world market for jet planes; Japan
and China to agree on joint oil and gas development
in East China sea... Sinomania! Volume II Webisode
57, May 12, 2008
For the past two weeks I traveled
with the Sinomania! Show crew to one of the most
undeveloped and poorest regions of the word –
the southern edge of the Caribbean basin, specifically
the islands known as the Lesser Antilles. Whereas
in ages past, Britain and France vied for remnants
of Spain’s faded empire, today the islands trade
flags between China and Taiwan as American influence
wanes. From what I saw, right now Taiwan seems
to have the upper hand. I’ll have a full report
in my next broadcast!
To superstition loving Chinese,
an earthquake is an omen of spectacular change.
Earlier today in the mountains northwest of Chengdu,
the capital of Sichuan Province, a 7.9 magnitude
earthquake shook the region with a quake wave
so severe it caused moderate earthquakes all over
central and north China including Beijing. The
death toll is huge and climbing and the damage
has yet to be assessed.
The quake is the strongest since
the massive TangShan earthquake in 1976 that preceded
by weeks the death of Chairman Mao. Then hundreds
of thousands perished and a middle sized Chinese
city was shaken to complete ruin. The damage today
in areas close to the epicenter is extreme but
the absence of widespread building collapse in
Chengdu is a testament to the improved quality
of Chinese building since the TangShan disaster.
Here are some details on the impact
of the quake on China’s economy:
Communications and transport in
southwest China are impacted – China Mobile says
around 2,000 mobile base stations were affected
and cell phone communications all but died for
much of today. PetroChina is assessing damage
to gas fields and pipelines – over 20% of China’s
gas is produced in Sichuan Province. China Eastern
cut air service to the region and Chinese state
railways were suspended with reports of bridges
destroyed. Toyota temporarily shut its plant in
Chengdu that manufactures Prada SUVs and minibuses.
China’s State Grid corp. says five power plants
were disconnected. And trading of shares in Sichuan
based companies may be temporarily suspended in
Overall, however, the biggest impact
will be on inflation due to supply disruptions.
And with inflation running very high – eight and
half percent in April – that could be the worst
aftershock for Beijing.
After months of hints and vague
promises, Beijing rescued Chinese shares at the
end of last month by reducing the duty on stock
trading back to levels before last May's increase
to curb short term speculation and reduce volatility.
The action was enough to spark a
bear market rally that brought the major indexes
back up to what some observers claim are sustainable
levels given current earnings and performance.
The Shanghai Composite Index closed
today at 3,626.98 up a fraction. The CSI 300
Index closed May 12 at 3,904.92 but remains
down 34% from its peak last October. B shares
were down, Shanghai Bs closed at 257.83 and ShenZhen
B shares are at 560.
Major indexes on Taiwan and
in Hong Kong also rallied back to healthy
levels but are down moderately at the start of
To date the Chinese domestic stockmarket
has lost almost one and a quarter trillion US
dollars in value since the start of the year.
In Shanghai today the China Commercial
Aircraft Company opened its doors. Anticipated
since last year the company is a big step in the
development of China’s aerospace industry with
plans to build large passenger and cargo jet planes,
entirely Chinese made, by 2020.
The company is initially capitalized
at almost $4 billion US dollars to fund its development
effort. The shareholders are the State-owned Assets
Supervision and Administration Commission, holding
the biggest stake, and a new conglomerate formed
by Shanghai’s Municipal Government and aerospace
heavyweights AVIC I and AVIC II. The possibility
of a future share offering was not discussed.
This is a major potential blow to
Airbus and Boeing the current market leaders.
Boeing in particular will be affected in the long
term as its business model for years is based
on sales to China. Shares of Boeing (BA)
were down sharply in the morning but recovered
by late afternoon.
Perhaps coincidentally, the new
president of the American Institute of Aeronautics
and Astronautics George Muellner released today
a report calling for a repeal of the restrictions
imposed a decade ago on aerospace exporters after
the Cox Committee alleged but never found evidence
that US sensitive technology had been sold to
China. The association says the export restrictions
have eroded market share for American companies.
The Chinese made jets are intended
for domestic sale but there is speculation China
may market them in Africa.
The first state visit by a Chinese
President in a decade to Tokyo led to a joint
agreement for "Cooperation Between Japan and China"
including a possible end to disputes over the
gas and oil riches under the East China Sea. Discussions
between Hu Jintao and Japanese Prime Minister
Fukuda revealed the two sides may agree to jointly
develop the gas and oil of the Shirikaba gas field
and other disrupted areas.
Finally, Microsoft announced last
week it will invest over a quarter billion US
dollars on a research and development center in
Beijing with a staff of 3,000 within three to
Thanks for watching and I’ll see
you next time on the Sinomania! Show.