What will the earthquake cost outside of Sichuan?
China Economic Review notes that labor prices are going to rise due to so many workers from Sichuan going to home. Richard, at All Roads Lead to China, had some immediate post earthquake thoughts on economic impacts too. China Herald noted two weeks ago, before the earthquake, that prices were already set to rise 12%.Workers with ties to Sichuan are certainly going to be interested in going back home, now that there will be jobs there, there will be no reason for them to stay in the East. The reconstruction work on schools and public buildings alone will take years to complete. Then there are the roads, utilities and other public infrastructure that must be repaired. Prior to any of that is the massive clean up effort that has to take place. Since Sichuan is the most populous province in China, this will mean millions of people and jobs. here's hoping that the governments in Sichuan give priority to local workers to help them rebuild their lives and families.Food prices, already at uncomfortable highs for many, will continue to rise as the earthquake strains both domestic food resources and the central inflation controls. The 5 million homeless will need to be taken care of for months to come. How many more don't have jobs (there may be an answer for some of these) and more than 250,000 are injured (i.e. homeless, jobless and unable to work). The shift in resource allocation is going to last through the end of the year, at least.On the 14th, John Ng, from Hong Kong wrote that Toyota and other manufactures in Sichuan had suspended operations and that market reaction to the quake was mixed.The BBC updated this by saying that Toyota was back in business this week and the cost of construction materials are already rising, by as much as 10%. The article also points out that the quake is costing companies close to 10 billion dollars. The China Post doubled the cost estimate.So what does this mean for the SME who's using a factory in Dongguan?For manufactures in Guangdong this amounts to a perfect storm of price increases. When coupled with the effects of the mature industrial base already here and the addition of China's new labor law you can see why options to move elsewhere are so attractive.The quake will directly impact production costs form most of China's east coast provinces that rely on cheap labor from other provinces. I've said before that unless you can pull complimentary suppliers with you moving to a second tier or third tier city in China is difficult. But the bottom line is moving without a fully developed supply chain can cost more than you ultimately save--it could also be the ticket to better margins; it will depend on what you manufacture, where you are now and how much of that production process you can honestly duplicate elsewhere.