Quake response to aid investor confidence in China

  • World
  • Thursday, 15 May 2008

MYT 2:46:35 PM

BEIJING (Reuters) - Foreign investors will probably come away from the devastating earthquake that hit China this week more reassured than shaken, thanks to the government's quick and open response.

Soldiers carry a wounded elderly man out from a collapsed building at the earthquake-hit Beichuan County, Sichuan Province, May 14, 2008. Foreign investors will probably come away from the devastating earthquake that hit China this week more reassured than shaken, thanks to the government's quick and open response. (REUTERS/Guangquan)

The 7.9 magnitude quake that struck southwestern Sichuan province on Monday, with its epicentre in a relatively remote, mountainous area, has had a bigger impact on human life than on the economy.

In comparison to past disasters, including the 2003 SARS virus crisis that was initially covered up and snowstorms earlier this year that Beijing was slow to respond to, the government has swiftly mobilised resources, sending tens of thousands of troops to help the relief effort.

It has also allowed a freer flow of information, with state media giving frequent updates on the number of people killed and missing. Foreign reporters have been allowed into the stricken areas, in sharp contrast to what happened during the unrest in Tibet and neighbouring provinces in mid-March.

That, more than worries about the potential impact of natural disasters on their business, is likely to remain in investors' minds, said Edward Radcliffe, a partner with corporate advisory firm Vermillion.

"These things could happen almost anywhere," Radcliffe said.

"(Investors) should probably come away from the events of the last few days with, the tragedy aside, relatively positive feelings about how the government's responded to the earthquake and how it's marshalled its resources."


China's handling of the earthquake stands out not only against its own record.

The Myanmar junta's slow response to the recent cyclone there has drawn widespread criticism, highlighting the loss of confidence that opacity brings.

Ian Stones, a long-time Chinese-based businessman and adviser to the Conference Board, said he had seen significant improvements in Beijing's approach in recent years, particularly since the SARS cover-up that marred its image.

"They've learned the hard way that they can't afford to let that happen again," Stones said. "It simply comes down to trust. If a government covers up, you don't trust a government."

China's attractiveness to foreign investors, drawn by its low-cost workforce, strong supply chains and generally solid infrastructure, shows in the numbers.

The country drew $74.8 billion in non-financial foreign direct investment (FDI) last year, up 14 percent from 2006. In the first four months of this year, FDI jumped more than 59 percent from a year earlier to $35 billion.

As part of its efforts to develop the interior, dubbed the "Go West" campaign, Beijing has offered enticements such as tax breaks to draw more foreign investment inland.

For its part, Sichuan attracted more than $2.0 billion in FDI last year, according to the provincial government, up from $1.47 billion in 2006 and around $1 billion in 2005.


Foreign firms including Intel and Lafarge have made big investments in Sichuan's capital, Chengdu, which largely escaped damage in the quake.

However, the earthquake, coming after the snowstorms that crippled transport links and cut power to large swathes of the centre and south of the country, could prompt some businesses to think twice about whether they want to move inland from the prosperous coast, analysts said.

Many foreign companies considering a move to the centre and west of the country will now probably have a closer look at the vulnerability of the infrastructure in those areas, said William Hess, greater China manager for Global Insight in Beijing.

"Even though this is an exceptional circumstance, other interruptions could happen to disrupt logistics and transport, which are obviously quite important to any kind of manufacturing operation," Hess said.

Still, he said the overall trend of increasing investment in those areas would probably continue.

Stones pointed to a potential silver lining from the disaster: it may focus attention on the quality of construction, something foreign firms could be well placed to improve.

"With raising building standards and quality, there's definitely opportunity there," he said.

(Additional reporting by Langi Chiang)

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