China's cold snap to heat up inflation, investment

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BEIJING, Feb 17 (AFP): China's worst winter weather in half a century will fuel inflation and investment problems in the Asian giant's runaway economy, while the rest of the world may also feel its impact, analysts say.
Weeks of heavy snow and freezing cold swept across densely-populated provinces in south China this month and last, destroying crops and wreaking havoc on infrastructure that proved much more fragile than previously imagined.
"The snow storm is a classic negative supply shock to the economy, and is set to drive inflation up," Lehman Brothers economist Sun Mingchun said.
Inflation is already running at levels not seen for a decade and China's communist rulers, wary about potential social unrest, have identified taming the problem as one of their top concerns.
But hampering their efforts, several crucial product categories were impacted as 18 provinces were struck by winter weather of a ferocity only people aged over 60 remembered seeing before.
The price of coal, which provides about 70 per cent of China's energy needs, is likely to go up, partly as a result of transport bottlenecks making it a desperately needed commodity in some parts of the country.
In China, one fourth of all locally produced coal is transported by truck, meaning chaos when road arteries are paralysed by ice or impenetrable blizzards.
"The government has basically decided for 2008 to let coal prices be determined by the markets," said Han Yong, a coal analyst with China International Capital Corp.
"But it may nevertheless decide to adopt special measures if coal prices rise at a too steep rate."