China: The Earthquake impact.

Here's how the recent earthquakes will probably impact China.

Due to the earthquake, China has lost huge amount of human capital, fertile land, natural resources, etc. It will impact the agricultural production drastically. The production would be less and the ability to deliver products in the market will reduce. This will result in demand supply mismatch. The increased demand would put pressure on the existing prices.

The affected area will require rebuilding and redevelopment. For this huge capital and resources would be required. Demand for resources like Oil, petrol, energy which are already scarce will push the crude oil imports. With crude oil touching life time highs, this can further add woes for the government.

Also the material and different services required for the redevelopment of affected areas will have a negative impact on the prices.

And while all this happening, maintaing high growth would be difficult. Add to it difficult global markets scenario.

Controlling measure for the government could be to restrict price rise or artificially freeze prices of commodities, in order keep a check on inflation. But, this can not be the ultimate long term solution. The earthquake has caused a real increase in demand and a real decrease in supply. How can price freezes possibly eliminate the disequilibrium? It explores both the difficulty of keeping prices at current levels – shortages and an increasing fiscal subsidy – and the difficulty of letting prices rise – the inflationary impact.

An unusual China!

China is known for its censorship and how it keep media at bay. The way it polices the internet is all known. There has been instances where the government has detained reporters and correspondents for trying to report from the spot on an explosion that killed many children in a school in Jiangxi province, in 2001. The country is very particular about what gets printed in the media about the country.

Yet this time, there is something unusual that has happened, in terms of openness and press access. As the country got struck by earthquake, I could see pictures flooded all over the news channels from morning to evening, live right from area where the event took place.

May be this might be an historic turning point for China, on its journey towards modernity and openness. I have never seen so many pictures on the media ever before from the ground china.

Now, the openess to media may have raise doubts on the preparations for Olympics, why the government was not able to recognise the event early, corruption, why the structures that collapsed didnt meet the standards, etc. But in a way this will also help China by getting aid from other parts of world, like this time, if such event occurs. Also, openess to media would help to install transparency and reduce corruption in the country.