China Equity Strategy Alert: Impact of the Fukushima Earthquake

china3On energy — The explosion and shutdown of nuclear power plants would increase Japan’s demand for fossil fuels, at least in the near term. The short supply of power has led to the shutdown of auto plants and other factories. But the ultimate impact of the disaster on fossil fuels is not clear. On the one hand, nuclear power could be seen as dangerous, and the global economy may rely more on fossil fuels going forward until a safe and economical substitute is available; on the other hand, the quake could be linked to global warming in which too much consumption of fossil fuels was one of the key causes, and thus the result could be just the opposite. What is clear is that the near-term volatility in the global oil market should continue, alongside the MENA crisis.

On China’s trade — China’s exports to Japan were about 8% of the total in 2010, and imports from Japan about 12% of the total imports, both down from about 18% a decade ago. In 2010, about 72.5% of China’s exports to Japan fell into five industries: machinery (39.2%), textile (18%), chemicals (5.6%), base metals (5.6%), and food (4.1%). Meanwhile, exports of autos and transportation equipment were only 2.9% of exports. Of China’s imports from Japan, 85.3% came from five key industries: machinery (48%), base metals (11.1%), autos & transport equipment (9.4%), chemicals (8.4%) and optical, photographic and musical instruments (8.3%). China imports more nuclear reactors & machinery (22.5%) than it exports (16.8%).

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