Across The Border | Yangtze River flood unlikely to push up China’s CPI, but highlights need for infrastructure investment

Raging floods in southern China affected millions of hectares of farmland and caused billions of yuan in economic losses, triggering concerns that food prices may surge and the resulting higher inflation could hinder China’s pace of monetary easing.

However, analysts said the inflation worries are so far overblown, although a short-term hike in food price will be an unavoidable and direct economic losses will be high.

Eleven provinces downstream of the Yangtze River have been affected by the flooding and landslides that began at the end of June. By mid-July the disasters had caused at least 146.9 billion yuan (HK$170.8 billion) in economic losses and killed 237 people, according to the national flood prevention and drought relief command centre. Jiangsu, Hubei, Hunan, Jiangxi and Anhui were the provinces hit hardest.

What has been of growing concern is the likely impact on food prices and inflation, as those five provinces account for half of China’s grain production.

Economic data shows, however, that even after the great flood of 1998, the annual output of grain that year was 3.7 per cent higher than the year before and the output of overall agricultural products increased 3.4 per cent year on year, according to a study by BNP Paribas economist Jacqueline Rong.

In 1998, a devastating flood in southern China killed 3,000 people and caused 166 billion yuan worth of economic losses – equal to 2 per cent of the nation’s gross domestic product that year. There were 21.2 million hectares of farmland affected in 1998, compared with around 5.46 million hectares this time.