Sichuan Earthquake Impact

The devastating May 12th earthquake in China's Sichuan province and multiple aftershocks has many investors wondering how the disaster will impact investments in the Asian country. The death toll is now at more than 62 thousand. Government estimates say the final death toll may exceed 80 thousand. Hundreds of thousands of people are homeless and infrastructure is in shambles. If this was just about any other country the economic impact would be paralyzing. However this is China and Sichuan is just one region of a mighty economic giant.

Aide is pouring into Sichuan from all over the world. The Chinese government is taking pride in their comprehensive response to the crisis. All indications are the region will get the attention it needs to recover quickly. Robert Subbaraman, chief economist Asia Ex-Japan of Lehman Brothers, expects some inflation to result from the earthquake since Sichuan is a large food producing region. However, the food supply is being increased in other parts of China, offsetting the losses in Sichuan. In fact, China endured major snow storms last winter that were far more disruptive than the earthquake is expected to be.

Economists are predicting inflation will taper off in China toward the end of the year. Keep in mind that even bad news for China is still pretty good news. China's GDP growth is expected to fall from 11.9% last year to 9.8% this year. That's still very strong growth. In fact, there may be a silver lining to this disaster. Many fixed asset investments could end up benefiting from earthquake reconstruction and actually increase growth in China later this year. The Chinese government's handling of the crisis has also been a public relations bonanza. It has shown them in a humanitarian light throughout the world and taken the spotlight off Tibet. This can only help open up China to the world and improve investiment opportunities.