Economic jolt from China's quake seen as limited

updated 10:43 a.m. ET May 13, 2008

SHANGHAI, China - The earthquake that ripped through central China’s Sichuan province, killing thousands, crumpling roads and factories and disrupting power and communication, will be only a transitory jolt for the booming economy, analysts say.

As companies assessed damage Tuesday from Monday’s 7.9 magnitude quake, it was clear that even in such a relatively remote region, China’s economy increasingly affects companies worldwide, however.

Japan’s Toyota Motor Corp. and other automakers announced they had temporarily suspended production at factories in Sichuan. Other companies, including Microsoft Corp. and Motorola Inc., reported minor damage to facilities.

“The Chinese economy, of course, will be hit first and the effect on the Japanese economy will come after that,” said Japan’s economy minister, Hiroko Ota. “Because we don’t know the extent of the damage to the Chinese economy yet, it’s hard to tell how much the Japanese economy will be affected.”

Still, financial markets in Asia were mostly higher Monday, reflecting relief over the lack of wider damage and signs that China’s own markets were taking the disaster in stride.

Tokyo’s benchmark Nikkei index rose 1.5 percent, as shares of bulldozer and heavy equipment makers like Komatsu Ltd. rose on expectations of higher demand due to the cleanup and rebuilding from the quake. Hong Kong’s Hang Seng index jumped nearly 2 percent to 25,553.77.

Chinese authorities suspended trading in 66 companies based in the quake zone, helping to limit potential disruptions. The Shanghai Composite Index dropped 1.8 percent to 3,560.24 after falling as much as 3.3 percent earlier. The Shenzhen Composite Index, of China’s second, smaller bourse, slipped just 0.2 percent to 1,109.90.

By late Tuesday, authorities had not yet issued any official estimates of damage from the earthquake, which struck a heavily populated but hilly region north of Sichuan’s provincial capital, Chengdu.

Access to many of the hardest-hit communities was blocked — state-run television reports showed roads impassable due to cracked asphalt and huge piles of rocks from landslides.

China’s work safety agency ordered factories, coal mines, chemical plants and gas wells damaged by the quake to suspend operation for safety inspections.

“All types of production enterprises affected by the disaster, especially coal mines, chemical plants and gas wells, must immediately suspend production and evacuate staff,” the State Work Safety Administration said in a statement on its Web site.

About 600 people died when two chemical plants collapsed in Shifang city just north of Chengdu, spilling more than 80 tons of toxic liquid ammonia, the official Xinhua News Agency reported.

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