China’s Snow Crisis Highlights Weaknesses of Economy

January 31, 2008

China’s financial capital saw fresh snowfall Wednesday as the impact of unusually wintry weather deepened, highlighting the vulnerabilities of the country’s booming economy.

Heavy snows in recent days have stalled shipments of food and fuel, complicating authorities’ efforts to combat a spike in inflation.

“The snowstorm came at the worst time,” said Jing Ulrich, chairman for China equities for JPMorgan Securities. “In the first quarter, we’re going to see pretty high inflation because of what is going on right now.”

With many regions facing severe coal shortfalls, Vice Premier Zeng Peiyan repeated calls for coal suppliers and railways to ensure adequate coal supplies for utilities struggling with surging demand and damage to power grids, the official Xinhua News Agency reported.

The country was deploying army troops and extra units of police to clear roads and help provide emergency supplies to millions of stranded travelers, state-run media reported, saying authorities had declared an “all out war” on the crisis.

For much of southern and central China, ice and snow are rarities. Businesses, railroads, airports and other systems that normally keep the economy ticking at double-digit rates are ill equipped to handle what – at no more than 30 centimeters (a foot) of snow overall – is normal winter weather elsewhere. Dozens of factories were closed, with mining and metals companies suffering from severe power shortages.

Out in the countryside, state television in Zhejiang province, which neighbors Shanghai, showed farmers digging out collapsed greenhouses and chicken sheds that had buckled under just a few inches of sodden snow.

The snowstorms have caused economic losses of 22 billion yuan (US$3 billion; €2 billion) since they began Jan. 10, according to the Civil Affairs Ministry.

In Shanghai, China’s largest and richest city, about three dozen buildings – mainly tin-roofed sheds, collapsed. One of the 50 people reported dead from storm-related accidents was crushed to death in such a collapse. Otherwise the city saw only minor disruptions from intermittent snow and sleet. City workers attacked the piles of slush and snow with brooms and scrapers, keeping most roads clear.

Links between big cities remain weak, however, with trains and truck traffic in many regions paralyzed by a lack of snow removal equipment, chains or even snow tires.

Courier companies announced they were rejecting non-local deliveries. The Shanghai Post Office said demand for its EMS delivery service was up 50 percent as a result, but asked that customers call ahead to confirm services before trying to send parcels.

Some cargo shipments were also suspended due to transport snags elsewhere, said customs officials at the Shanghai Waigaoqiao Free Trade Zone, where some operations were suspended for a half-day Monday due to snow.

With companies unable to send documents by courier, customs clearance was delayed in some cases, said the official, who like many Chinese bureaucrats refused to give his name.

China share prices fell Wednesday, with the benchmark Shanghai Composite Index down 0.9 percent to 4,417.85, as investors sold airlines, railways and shipping companies on expectations the weather will sap their earnings.

Daqin Railway Co. fell 2.5 percent. Ocean shipping company COSCO sank 4.2 percent and Shanghai-based carrier China Eastern Airlines Co. dropped 2.7 percent.

The storms illustrate developing China’s persisting limitations after 30-years of economic reforms that have turned it into an export juggernaut, with economic growth forecast at more than 10 percent this year.

Just a few months earlier, shortages of diesel fuel slowed transport in many regions. Now, it’s coal – used to power more than three-quarters of China’s electricity – which is in short supply.

China’s railways are overburdened; its fast-expanding road system is incomplete, even in Shanghai’s suburbs, and its power grid is antiquated and inefficient.

“Under investment remains China’s key challenge,” said a report issued Wednesday by investment bank Merrill Lunch. It focused on the opportunities posed by the country’s need to build up the country’s “fragile infrastructure” and help close the huge gap between relatively modern coastal areas and backward, impoverished inland regions.

“Hopefully, this will be a wake up call and an incentive for the government to invest in a critical transportation system, which means railways,” said Ulrich.

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