Extreme Weather Affecting Operations in China
China’s heaviest snowstorms in five decades crushed homes, grounded flights, disrupted electricity and left hundreds of thousands of travelers stranded, a week before millions take to the roads for the Lunar New Year holiday – almost all in southern locales that don’t normally get snow.
Highway, rail and air service are being impacted, with shipments of coal, fuel and other raw materials to power plants and manufacturing plants being seriously delayed.
Our information is consistent with that reported in major media. We believe that factories in as many as 17 provinces are being affected, with those in Hubei, Hunan and Jiangsu being amongst the hardest hit. Many are facing power shortages and significant delays in receiving raw materials. Due to priorities being placed on getting much needed coal to power plants, some are being told by logistics providers that shipments of finished products to customers may be delayed for as much as two weeks. This means that both production and sales of many factories in China will be negatively affected in both January and February.
On a personal level, severe weather has made travel nearly impossible. Two of our managers from Hunan Province left Beijing Friday afternoon, January 25, on a flight to Guangzhou where they hoped to get a train to their home in Hunan Province. As of Monday evening, they were still stranded in the Guangzhou railway station, along with 150,000 other travelers. They are being told that over 600,000 people are stranded in Guangzhou when air and bus transportation are also taken into account. A true state of emergency exists throughout much of China.
Moreover, this bad weather and snarled transportation comes a week before Spring Festival a.k.a Chinese New Year, China’s most important holiday, a time when over 100 million Chinese travel to return to their hometowns or visit relatives elsewhere. The holiday runs from February 6 to February 12 this year, and the government has predicted that over 2.0 billion journeys would be made during this period.
In addition to its negative impact on manufacturing operations, the severe weather will put further upward pressure on inflation, which remained at 6.5 percent in December of last year. “Energy shortages and transportation bottlenecks are likely to aggravate inflation pressures in China in the short term,” Goldman Sachs Group Inc.’s senior economist Liang Hong said Monday. “These latest developments will likely push up near-term CPI inflation to levels that will be very uncomfortable for policy makers and China’s investors.”
Does that tell us anything about whether the coming year will be the Year of the Mouse or the Year of the Rat?
