China's worst winter weather in half a century will fuel inflation and investment problems in its runaway economy, while the rest of the world may also feel the impact, analysts say. Weeks of heavy snow and freezing cold swept across provinces in south China this month and last, destroying crops and wreaking havoc on infrastructure that proved much more fragile than previously imagined.
"The snowstorm is a classic negative supply shock ... and is set to drive inflation up," said Lehman Brothers economist Sun Mingchun.
Inflation is already running at levels not seen for a decade and China's rulers, wary about potential social unrest, have identified taming the problem as one of their top concerns.
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But hampering their efforts, several crucial product categories were impacted as 18 provinces were struck by weather of a ferocity only people aged over 60 remembered seeing before.
The price of coal, which provides about 70 percent of the mainland's energy needs, is likely to jump, partly as a result of transport bottlenecks making it a desperately needed commodity in some parts of the country.
A quarter of all locally produced coal is transported by truck, meaning chaos when road arteries are paralyzed by ice or blizzards.
"The government has basically decided for 2008 to let coal prices be determined by the markets," said China International Capital Corp analyst Han Yong. "But it may decide to adopt special measures if coal prices rise at a too steep rate."
The price of agricultural goods has been a major factor in driving up inflation - which hit 6.9 percent in November and 6.5 percent in December - and will likely become even more of a problem after the winter shock.
"It's mainly the southern area that has been affected by the snow, with an impact on winter wheat, rapeseed and fruit," said Zhu Jianfang, a Beijing- based economist with Citic Securities.
"Over the short term, inflation will definitely be impacted. We initially believed inflation would be about 4.5 percent this year, but we're now inclined to think it will hit 5 percent."
This could become more than just China's own problem if it decides to access world markets to make up for strained supplies at home.
"The snow storms are affecting 10 percent of China's farming land. One of the solutions is that the government may start importing more grains and meat," said Dong Tao, an economist with Credit Suisse. "Given the size of the population, I think this will have an impact on global soft commodity prices and global inflation."
