The idea that people are able to cause earthquakes seems inherently wrong. Yet, in the wake of what has happened in Sichuan, there are reports that perhaps the Three Gorges Dam (TGD) – some 660 km (we wrongly said 200 km earlier) from Wenchuan – is partly responsible for increased seismic action in the area.

The TGD reservoir sits on two major fault lines and the rising water level is straining these fault lines. Probe International (proxy needed) has more:

For seven months after the reservoir-level increase in 2006, Chinese Academy of Engineering scholar Li Wangping says the Three Gorges area registered 822 tremors. So far, none have been severe enough to cause serious damage. But, later this year when the dam’s water level is set to rise to its full 175-meter capacity, the increase in water pressure, in water fluctuation and in land covered by the reservoir, Fan says, makes for a “very large possibility” that the tremors will worsen.

And the TGD is not alone:

Engineers in China blame dams for at least 19 earthquakes over the past five decades, ranging from small tremors to one near Guangdong province’s Xinfengjiang dam in 1962 that registered magnitude 6.1 on the Richter scale – severe enough to topple houses.

I should say here that this is not to suggest any direct link between the dam and the Wenchuan earthquake on Monday afternoon. But it is interesting that when it comes to dams and earthquakes, pro-dammers spend an awful lot of their time assuaging fears that the world’s biggest dam can withstand earthquakes (although it is designed to handle a 7.0 quake, and Monday’s was 7.8 at the epicenter). Xinhua was quick to announce that Monday’s earthquake did not damage the TGD.

However, instead of asking how dams are affected by earthquakes, it seems it may be useful to flip that question around.

First views on the quake from economists and analysts we follow regularly. Here’s Deutsche Bank’s Jun Ma, greater China chief economist, and Moody’s Economy.com’s Sherman Chan, an economist who covers China for the research firm:

Macro view

Deutsche Bank: “At the macroeconomic level, our current view is that the impact is limited … The equity market may be hurt by the rising uncertainties related to earnings impact and liquidity flows.”

Moody’s Economy: “Although the earthquake has caused major disruption only to the Sichuan province, which represents a relatively modest share of the country’s GDP, the economic impact of the earthquake to China as a whole is likely less severe compared to the snowstorm. Nevertheless, the earthquake has shaken market confidence.”

Sector and company view

DB: Sichuan Expressway (107.HK) will see slower traffic growth, Dongfang Electric (1072.HK) has major production bases in Sichuan. China Telecom (728.HK) is the worst hit of the telcos, the affected area represents about 10% of its fixed line network. The quake will also affect 7% of China Mobile’s relay network. Sinopec (386.HK) has a Sichuan gas project under development that will account for about 7% of FY10 revenue. Insurance firms, property companies with Sichuan and Chongqing in their portfolios. Cement makers like Shui On Cement (983.HK) and Anhui Conch (914.HK) could benefit.

ME: “The most direct impact is the disruption to economic activity due to problems with transport, communications and power supplies. In relation to business operations, the most affected by the disaster will be the manufacturing, retail, transport and tourism sectors. However, China’s construction and engineering industries will be able to take advantage of the massive reconstruction of buildings and infrastructure in coming months.

Bill Dodson at the This is China! Blog makes an interesting point on companies trying to escape local environmental regulations by relocating to the next, less demanding county in this post (quoting from this Reuters article on the same subject):

Despite the trend of polluting factories moving inland to provinces such as Hunan, Guangxi, Zhejiang and Jiangxi, there have been examples of authorities hitting back.

That implies in my mind that as Western companies expand into the interior of China, they need to do their due diligence about just who their neighbors are. And don’t just necessarily follow the big names into the small cities: the Central Government recently tagged some MNCs like Pepsi, LG and Samsung for fouling the environment.

A new IPE report, written in collaboration with investment bank CLSA and green group WWF, found Chinese public and media pressure was playing a crucial role in filling a void in official enforcement, with complaints made to environmental authorities increasing 30 percent annually and hitting 600,000 cases in 2004.

A modern-day Chinese society that values environment over making money: now that’s downright anti-socialist with Chinese characteristics.

After a brief reprieve, it’s now snowing in earnest again. China’s disastrous winter weather has already killed at least 60 people nationwide.

The central government has tapped into its emergency pork reserves, and will release 18,000 tons before the lunar new year on February 6.

The hardest-hit province appears to be Hunan, with Chenzhou city going into its eighth day without electricity. Food and petrol in that city of 4 million are running low. The Central Meteorological Authority’s website forecasts indicate more snow and sub-zero temperatures there for the next two days.

The SCMP reports that massive traffic jams around Nanjing are preventing supplies like fuel from entering the city. As a result, some stations are rationing fuel to 30 liters per car. Some taxis are charging up to three times the usual fare because of the fuel shortage.

Shanghai has shut down its port, leaving 1,000 ships stranded. According to Bloomberg, the storms could continue until the end of next week.

However, the Central Meteorological Authority’s forecasts on its website indicate that Shanghai should be clear of snow, although still cloudy, tomorrow and on Monday.

Highlights from the last week of China business news.

Icy chaos
A devastating winter is taking its toll on China. The civil affairs ministry has estimated exactly how much damage, in financial terms: US$4.5 billion. Dozens of people have lost their lives in the treacherous weather weather, the worst in 50 years. Electricity grids, roads and railways are overstretched as unusually heavy snow and rainfall batter the country. This has been compounded by the impending Lunar New Year holiday, which will see millions of workers returning to their home provinces by road and rail. The weather has left hundreds of thousands stranded: In Guangdong, 200,000 people claimed ticket refunds at the Guangzhou railway station, while another 200,000 continued to try their luck waiting. The country’s top leaders appear to be in full swing. Premier Wen Jiabao popped up at the Changsha railway station - and, just 24 hours later, at Guangzhou station - to show his support for stranded travelers. The People’s Liberation Army has reportedly mobilized half a million troops to clear roads of snow. China’s top meteorologist has said that snow and rainfall will ease on February 2, although it will still take weeks to get transport and electricity systems back to normal capacity.

Consume, consume!
It’s all about consumption. For deprived doughnut enthusiasts in China, Dunkin’ Donuts announced it will open more than 100 stores across the country in the next 10 years. For now, however, it’ll start with less than 10 stores in Shanghai. Just in case doughnuts weren’t sufficiently nutritious, McDonald’s said it will open 125 new restaurants in China this year. Half of those will feature drive-through windows - a sure way to tap into that lucrative middle-class market. These corporate announcements are bolstered by figures from the National Bureau of Statistics that show domestic consumption has overtaken foreign investment as a share of GDP in 2007. Bring on the doughnuts and burgers, we say.

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Highlights from the last week of China business news.

Hobnobbing in Bali and Beijing
Lots of high-powered meetings recently, with the attendant speculation about their outcomes. Probably the most enjoyable one to be at is in Bali, where 190 countries have sent delegates to hash out a plan - for two weeks - to replace the Kyoto Protocol, which expires in 2012. That meet started Monday, and, although details are still surprisingly thin on the ground, it appears that China will continue to reject imposed emissions targets. It will propose the creation of an international technology transfer fund - paid for by developed countries - that will help developing nations research and create their own clean technology. This works out very well for China, clearly. In the less salubrious environs of Beijing, another meeting of consequence ended this week, confirming the rumors that the top national leadership has decided to step up monetary tightening measures next year. The seasoned decoders of bureaucrat-speak at the Journal say officials now speak of a “tight” monetary policy for next year, instead of the “stable-to-tight” regime now in place. Next week, the US-China Strategic Economic Dialog happens for the last time this year. Hank Paulson flies in with Susan Schwab, product safety chief Mike Leavitt and others to talk about product safety and - surprise! - letting the yuan appreciate more quickly. Vice Premier Wu Yi must be glad she’s retiring in March.

Rio Tinto mines a rich vein of rumors
Will they or won’t they, steel executives wondered this week about a Chinese counter-bid for Rio Tinto. Last week, we wrote that China Investment Corp was rumored to be putting together a deal to buy into Rio, but that was quickly squashed by CIC and Rio executives. The sovereign wealth fund did say, after all, that it’s not confident enough to go raiding abroad yet, and that it would steer clear of sensitive industries. So the rumor mill promptly put new hearsay into circulation. For awhile, it seemed that Baosteel would spearhead a consortium of Chinese firms to snatch up Rio Tinto. A Baosteel executive told Economic Observer last week that his firm would only join a bid if the Chinese government wanted it to - hinting that a bid was possible, though not confirmed. Then the 21st Century Business Herald said Baosteel chairman Xu Lejiang confirmed that a bid was in the works. Shares of Rio Tinto jumped. Today, the official Shanghai Securities News quoted Xu denying the quote. “I did not say this. It is a fabrication of the media,” he said. Even with that seemingly definitive response to the matter, our guess is the rumor mill still has plenty of grist to keep it churning.

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Highlights from the last week of China business news.

Minesweepers
The world has three big mining companies, so when one of them tries to buy out another, serious consequences abound. Australia’s BHP Billiton has been trying to buy rival Rio Tinto, which caused alarm in China, because that would mean two companies (BHP and Companhia Vale do Rio Doce) controlling the supply of iron ore - not a situation a large iron ore buyer like China likes to find itself in. China Investment Corp, China’s new sovereign investment fund was rumored to be ready to swoop in with a counter-bid for Rio Tinto, reportedly rallying local steelmakers like Baosteel to put up a US$200 billion offer. The bid was quickly denied by both CIC and Rio Tinto on November 27. Nevertheless, a top Baosteel officer remarked to the Economic Observer after CIC’s denial that Baosteel would only join a Rio Tinto bid at the behest of the central government.

New ways to curb carbon?
Amid the chorus of calls for a stronger yuan this week from EU officials visiting Beijing, French President Nicolas Sarkozy added a threat about possible carbon tariffs for Chinese imports. He said he would defend the idea of a carbon compensation mechanism for imports to EU countries, before an important international meeting in Bali next week that will help decide a successor to the Kyoto Protocol. Earlier, the United Nations Development Program released a report that will set the agenda at the Bali summit that recommended cutting China and India some slack when it came to emissions limits. The report says that rich industrialized nations must bear the brunt of emissions caps. It also hinted that the cap-and-trade system implemented by the Kyoto Protocol may be outmoded and that a Sarkozy-style carbon tax may be a better option. China and the UK also announced this week a new clean-energy project that will work on carbon sequestration technology to create so-called clean coal.

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Highlights from the last week of China business news.

Inflated figures
China’s third-quarter macro figures came out last week. The trade surplus in October continued to surge, which for once is actually surprising. Expensive commodities worldwide meant that the value of imports was up 25.5% from a year ago, but export growth still outpaced it, leaving the month’s trade surplus at US$27.05, a record high. The central bank said GDP rose 11.5% in the first three quarters, compared to a total increase last year of 11.1%. On the other hand, inflation rose 4.1% in the first three quarters, compared to a 1.5% rise in 2006. Goldman Sachs analyst Hong Liang raised a warning about inflation again (she did this a few months ago at the height of the pork shortage too), saying that the monthly CPI could hit 7% this year. The central bank has done the only thing it can do: raise interest rates. The reserve requirement rate will go up for a ninth time this year, to 13.5%, effective November 26. Central bank governor Zhou Xiaochuan has pledged to fight inflation, but how exactly he plans to do this is anyone’s guess. Goldman predicts two more rate hikes by year’s end.

Planning a buying spree
Remember all that talk about a gush of Chinese capital outflows? Well, it’s definitely in the works. China National Offshore Oil Corp, which reduces to the rather cute acronym CNOOC, was linked to acquisitions in Australia and Nigeria this week. There was a rumor that CNOOC wanted to take over Shell’s stake in an oil project in Australia’s Northwest Shelf region for US$450 million, which was later curtly denied by the Chinese company. Now, a new story has surfaced, saying CNOOC wants to hand over US$900 million to Shell, again, but this time for almost 50% in two Nigerian offshore blocks. No comment from CNOOC.

But commodities acquisitions aren’t really news - banking buy-ins, however, are. The FT broke the news - citing anonymous sources - that China’s top three banks, Bank of China, ICBC and China Construction Bank, approached Singapore’s Temasek Holdings to buy its 17% stake in Standard Chartered. The contacts were “informal and discreet,” which could mean anything, really. In any case, no deal is on the cards - Temasek isn’t selling, and Standard Chartered isn’t keen on having its independence questioned by having the Chinese as its largest stakeholder. An ICBC official denied that any such offer to Temasek took place. Lastly, the much-ballyhooed China Investment Corp revealed that it’s a cornerstone investor in China Railway Group’s Hong Kong listing. The sovereign fund will take US$100 million, the biggest institutional stake, in the H-share offering. This is its second move after buying into Blackstone months ago.

Singapore boosts its guanxi
China and Singapore indulged in a week of cozy relationship-building, with top officials of both countries meeting here and in the land of the Merlion. Singapore’s Lee Kuan Yew told Singapore’s newspaper, the Straits Times, that the man tipped to be Hu Jintao’s successor, Xi Jinping, belonged to the “Nelson Mandela class of persons,” upon meeting him for the first time in China. Meanwhile, Premier Wen Jiabao spoke candidly at a conference in Singapore, saying that illegal money flows threatened China’s stability and that his government would have difficulty reaching the environmental targets they set for themselves. This culminated in the announcement that China and Singapore would build an “eco-city” together in Tianjin, that hot economic development zone the central government is now so keen to promote. It brings to mind another Singapore-China project, the Suzhou Industrial Park, which was started when China was still trying to encourage industry in the Yangtze River Delta. More eco-cities are a good idea, because hopefully it will mean hearing less disturbing news, like the report this week about China’s increasing appetite for nuclear energy, and how it has just signed a landmark deal with Kazakhstan to buy the uranium it needs to build 40 new nuclear power plants by 2020.

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You may have read last week that International Olympic Committee head Jacques Rogge said that some Olympic events may have to be postponed if some days fail to live up to Beijing’s promises of clear blue car exhaust-free skies, for the sake of the athletes competing. Smoggy days may be depressing, but most of us without lung conditions (yet) can manage to walk around in one. How much does pollution affect world-class athletes? Slate’s frequently useful Exlpainer column is glad you asked. Here’s what they had to say:

Scientists haven’t done enough research to be sure, but it could make it impossible to break any world records. An athlete must breathe in a large amount of air during a competition—more than 20 times the amount inhaled by a normal person at rest. In Beijing, that means the athlete will be getting a super-sized dose of ozone and fine particulates, which can make respiration more difficult and reduce the amount of oxygen that gets to the muscles.  …

It is possible to develop a tolerance to ozone over just a few days, but that doesn’t mean athletes should spend extra time training in Beijing. In fact, Olympics coaches advise competitors against arriving too early and recommend wearing activated carbon filtration masks.

Yikes. Read more here.

picture from Slate

Highlights from the last week of China business news: Lenovo is badly outmaneuvered by rival Acer; German Chancellor Angela Merkel beats the human rights drum on a visit to China.

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