Monday February 4, 11:48 AM
Limited economic impact from snow in China: economists
BEIJING (AFP) - The impact on China's economy of the worst snow in decades could be limited and may even spur a new round of investment, local and foreign analysts said Monday.
Three weeks of snow across most of China has taken a toll on the economy but the impact will dissipate over the full year, Xinhua news agency reported, citing Fan Gang, director of China's National Institute of Economic Research.
The snow is likely to stimulate investment in items such as upgrading the national power grid or improving the transportation network for coal, Fan was quoted as saying.
"There is no doubt that such a big economy will encounter various difficulties each year, but the Chinese economy is maintaining stable growth momentum," said Fan.
The extra investment spending is a factor Chinese policy makers need to take into account as they prepare economic measures for this year, the mass-circulation China Daily quoted economists saying Monday.
"The economic situation has become complicated with the new factors cropping up," said Wu Jinglian, an analyst at the State Council Development Research Centre, the central government's think tank, according to the paper.
China's economy, the world's fourth-largest, grew by a blistering 11.4 percent in 2007, the highest level in 13 years.
Investment accounted for 4.3 of those 11.4 percentage points, more than the 2.7 percent accounted for by net exports, according to the National Bureau of Statistics.
Economists at foreign financial institutions agreed that policy making could be complicated in the coming months by the unexpected disruption caused by the snow.
"The biggest damage comes from production disruption, due to power shortages and transportation blockages," said Dong Tao, an economist with Credit Suisse.
"We tentatively estimate about one to two percent of industrial production growth has been lost, though part of that could be made up for later," he wrote in a research note.
The slowdown in industrial output -- most prominently in energy-intensive industries such as non-ferrous metals -- could prompt the government to adopt a less tightening stance.
But at the same time, the government might end up in a dilemma, as the weather could push up prices, facing the government with the necessity not to loosen too much.
"Pressure for relaxing credit control and reversing of other tightening policies may then rise as a result," said Wang Tao, a Bank of America economist, in a research note.
"On the other hand, a likely significant rise in ... inflation in the first couple of months could be used to call for further monetary tightening and inflation control."
The World Bank Monday also predicted limited impact on the economy, as it lowered the 2008 growth forecast for China from 10.8 percent to 9.6 percent, not because of the snow, but because of the global slowdown.
"Natural (Oslo: AKBM.OL - news) disasters normally call for economic activity to repair the damage," David Dollar, the head of the bank's China office, told a briefing in Beijing.
Most of the impact of the storms -- including rising food prices and a decline in industrial output over January and February -- will turn out to be temporary, World Bank economists said.
There "could be some pick-up (later in the year) as investment takes place to solve the bottlenecks," said Louis Kuijs, a senior economist with the bank.
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