Inflation, agricultural production, supplies of building materials and tourism are all expected to take a hit from earthquake-related destruction and reconstruction. Rebuilding in quake-devastated areas will likely present the largest of the economic challenges. The government has said it will take three years to rebuild the affected areas of the Sichuan province, where some five million people remain homeless after the 7.9-magnitude quake on May 12 that killed at least 69,000 people. Aftershocks remain a major concern.
The French investment bank Société Générale warned that the earthquake and its long-term aftermath will have a "profound impact" on investment in China, and rebuilding after the quake will likely cost the government $60 billion. The bank pointed to trends in other quake-struck areas such as food shortages and fast-rising inflation.
As yet, China's leaders have not named a cost for the rebuilding projects in Sichuan, but have ordered all government departments to cut their spending by 5 percent and scale back on travel to inject money into a rebuilding fund. Yet despite the heavy cost calculations for rebuilding homes and businesses lost, top leadership insists the Sichuan earthquake will not have a major impact on the country's overall economy and growth.
In a press conference on May 28, officials from the National Development and Reform Commission, China's central economic planning body, said because Sichuan's economy accounts for less than 4 percent of the country's gross domestic product, the nationwide impact of the earthquake will be negligible. Mu Hong, vice director of the commission, said the government is watching for price gouging in the affected areas and believes the impact on inflation will be temporary.
"The quake will be a heavy blow to the local economy as many assets and production facilities were destroyed. But it will have a very limited impact on the country's economic fundamentals," said Mu.
In spite of that optimism, the Chinese central bank warned of rising inflation from the fallout of the earthquake, especially in building materials like concrete and steel. China has already been battling record-paced inflation for several months, as officials worry fast-rising consumer prices will shake the country's social stability. Consumer prices rose by 8.5 percent in May over last year, continuing this year's trend of near-record highs.