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Experts Weigh Economic Impact of China Quake

The massive earthquake that struck southwestern China on Monday left only moderate damage in the retail areas of Chengdu??? the largest city near the...

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BEIJING — The massive earthquake that struck southwestern China on Monday left only moderate damage in the retail areas of Chengdu — the largest city near the quake’s epicenter — cutting power and leaving most stores closed. But economists said the quake and its human toll will test consumer confidence both locally and nationwide.

Less than 24 hours after China’s largest quake in decades, retail shops in the commercial heart of Chengdu reported little physical damage to buildings. Still, telephone communications were spotty and electricity remained out in several parts of the city. Thousands of residents opted to huddle in the rain to avoid entering buildings for fear of aftershocks and falling debris, according to local reports and China’s state-run media. In most shopping areas, only restaurants and supermarkets were open for business, observers said.

Economists predicted the overall economic impact of the quake, which killed at least 12,000 people, will be limited to the immediate region surrounding Sichuan province, a relatively remote area accounting for just 2.5 percent of China’s total manufacturing industry, according to a Merrill Lynch report distributed Tuesday. Still, some warned the quake could have significant psychological repercussions for a country that is already in a somber mood thanks to the controversy surrounding the Beijing Olympics and a string of recent misfortunes, including freak snowstorms, uprisings in Tibet and April’s high-speed train wreck. Many Chinese, somewhat superstitiously and justifiably, are hailing 2008 as an unlucky year.

The quake’s effect on consumer confidence will be long-lasting and reverberate throughout China, said Zhang Ming, an economist with the Chinese Academy of Social Sciences in Beijing.

“It is especially hard for industries like manufacturing, the service industry and tourism,” said Zhang. “It’s difficult for people to work and function with the same confidence as before. It’s going to take a long time for people to get over the crisis period.”

But Merrill Lynch in its research note predicted the quake would have a limited impact on the Chinese economy as a whole. China’s record-paced inflation, which was up 8.5 percent in April, was more affected by the freak spring snowstorms that ground logistics to a halt in the Pearl River Delta for several weeks.

“The earthquake should have a much smaller impact on China’s economy than the snowstorm [that] happened earlier this year,” wrote Lu Ting, Merrill Lynch economist. “The earthquake affected less area in China, and the disaster itself has a short time span.”

Still, life in Chengdu, which was largely spared in terms of structural damage, is hardly normal. A power outage forced mall Xiwu, in the heart of Chengdu, to shutter its doors Tuesday, according to a clerk at a Louis Vuitton boutique there. The same mall houses other luxury shops like Dior and Versace. At Ito Yokado, a Japanese shopping mall that houses Jack & Jones and Vero Moda, businesses were open but customer traffic was extremely slow, a clerk told WWD before the telephone line went dead. The quake cracked the glass in one of the windows of Emporio Armani’s store in nearby Chongqing but didn’t cause other damage or injuries, an Armani spokesman said.

Balbina Wong, deputy chairman and chief executive of fashion distribution company ImagineX Group, said that she’s been monitoring the news and keeping tabs on her staff at the Maison Mode department store in Chengdu.

“There has been some difficulty in communicating. We can’t reach them, but they have been getting through to us through our Beijing office via telephone and e-mail. The whole thing is tragic. [Maison Mode] is already closed, I don’t know for how long,” she said, adding her office has started a relief fund to help people in the area.

Chengdu is one of China’s booming “second-tier” cities, where new wealth and a rising middle class have created thriving retail markets. Four years ago Intel built a test and assembly plant in the city, spurring much of the region’s economic development. The company led a high-tech boom in Chengdu, previously a primary development zone for China’s aerospace and defense industries.

While the Chengdu region and Sichuan province at large are home to some textile and apparel manufactures, the bulk of those activities are concentrated in the Guangdong province and the Pearl River Delta. Still, before the quake, it looked like an increasing number of businesses were eyeing the Sichuan region. There’s been recent speculation that rising labor and raw materials costs in southern China are pushing companies to Sichuan and other parts of the interior west.

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