While China remains gripped in the traumatic aftermath of the devastating Sichuan earthquake that have juxtaposed extreme tragedy and national outpourings of grief with heroism and sheer determination to save more lives, the economic impact of the quake is largely regarded as limited. While an important producer of agricultural products, Sichuan comprises about 4% of China's GDP production and most of the province's developed areas were left largely undamaged. Chinese government sources estimated the quake to have affected 14,207 industrial companies, however, which may have incurred losses of 67 billion yuan, equal to about 0.5% of China's GDP for 2007. State-owned enterprises are estimated to have incurred losses of about 30 billion yuan, and around 3,000 employees of these companies are injured, dead or missing.

As such the quake is expected to rather aggravate inflation than impede economic growth, and the loss of farm output in Sichuan will impact already tight supplies of rice and pork. Anticipating more upward pressure on prices, Premier Wen Jiabao this week described the quake's impact as uncertain, and of immediate concern is the formidable challenge of sheltering close to 5 million residents left homeless in Sichuan. Yet coupled with the effects of a mature industrial base and the new labor law, the quake could amount to what David Dayton at Silk Road Blog calls a perfect storm of price increases, and production costs from most of China's east coast relying on cheap labor from other provinces will be directly affected.

Yet while the quake is a human tragedy more than an economic one, much of the uncertainty rests on the potential impact on China's energy infrastructure and raw materials supply. The Green Leap Forward has put together a posting on the quake's impact on energy in Sichuan, which is a major onshore gas producer and China's largest hydropower generating region. Sichuan's electricity grid is reportedly running at 76% of pre-quake levels with 27 power stations shuttered, and 22 coal mines in Sichuan, Chongqing and Gansu were also affected by the quake. Furthermore, the operations of Dongfang Turbine, which produces 30% of China's locally made turbines (and is also the third largest domestic manufacturer of wind turbines), were virtually wiped out. In addition, with 391 dams believed badly damaged by the quake, the Water Resources Ministry has acknowledged major safety issues with reservoirs, hydropower stations and lakes. Earlier this year, the deputy minister of Water Resources admitted that roughly 37,000 of the country's 87,000 dams are in a dangerous state.