Economy Weighs in on Sichuan Quake Reconstruction Planning

Nearly a month after the devastating 8.0-magnitude earthquake on May 12 left Sichuan in ruins—with massive relief operations still on-going—Beijing is beginning to grapple with the arduous task of post-quake reconstruction and assessing its costs to the Chinese economy.

The State Wenchuan Earthquake Reconstruction Planning Group was established by the State Council’s Earthquake Relief Headquarters chaired by Premier Wen Jiabao to oversee post-disaster reconstruction planning and policy (Xinhua News Agency, June 1). So far the central government has pledged up to $10.7 billion (75 billion yuan) in 2008 to the reconstruction fund and promised additional funds over the next two years (Xinhua News Agency, May 27), far short of the estimated $29-43 billion (200-300 billion yuan) that some experts say is needed just to bring the local economy back to pre-quake levels (South China Morning Post, June 4).

A preliminary government investigation showed that the quake resulted in $9.7 billion (67 billion yuan) in direct losses, while centrally administered state-owned enterprises (SOEs) reported losses of more than $4.3 billion (30 billion yuan) (China Post, May 20; Xinhua News Agency, May 27). Many analysts and organizations believe, however, that the total losses could exceed $20-25 billion (140-150 billion yuan).

Liu Je, director of the Sichuan Provincial Development and Reform Commission, announced a preliminary government reconstruction plan that will devote resources to infrastructure development for the first three years of reconstruction efforts, and economic rebuilding starting in 2011 (Guangzhou Daily, June 3). At the State Council’s 16th Working Meeting for earthquake relief, Premier Wen Jiabao admitted that the earthquake has added new uncertainties to China’s economic outlook; however, he insisted that the government will pursue quake relief and reconstruction on equal footing with economic development (Chinaview.cn, May 21; Xinhua News Agency, May 27). Chen Dongqi, vice president of the Academy of Macroeconomic Research under the National Development and Reform Commission (NDRC), joins the ranks of senior economic planners that have called on the government to make adjustments to economic policies to avert a more critical situation if the economy weakens from the quake. Chen said that proactive fiscal policies, including cuts in personal and corporate income taxes, are needed to avert a potentially more destabilizing crisis for the Chinese Communist Party (China Daily, June 4).