Men succumb to the power of nature
Last week's earthquake in Sichuan, China will likely wipe away 1/4 of its economic growth in the 2nd half of 2008. Apart from human losses and infrastructural destruction (e.g., roads, dams, bridges and telecommunication), the full impact of this catastrophe will not be felt for another 3 to 9 months. Then, China must allocate resources to rebuild its infrastructure and telecommunication systems to access its rich natural resources (e.g., natural gas, coal and petroleum) of this region. More importantly, this refocusing of resources coincides with the end of the Olympics and the realization that all of its "white elephant" projects will become non-productive assets which will depress the value of real properties in and around Beijing. The result of which is that China has miss-allocated too much of its resources into building expansively and rampantly to accommodate the Olympics and attributed insufficiently to expand its base of renewable energy source capable of sustaining its economic expansion. Given no choice, the Chinese government must import and burn more oil (mostly imported from Asia and the Middle East) and coals (high sulfur content), furthering contributing to inflation and untenable pollution. Yes, pollution also has an economic cost and will further dampen growth and will incite greater social unrests and health issues across China.
The picture ahead for China is extremely ominous. One more major upheaval may lead to widespread public protests from its citizens who are increasingly dissatisfied with an inept and corrupt regime. More importantly, what's the impact for foreign investors who seek a healthy return on their investments in China?
Stay tune!
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