Buried in snow

The worst winter weather in 50 years that hit south and central China in January and February, disrupting power supplies and transport, made the traditional Chinese New Year one of the coldest holidays in a generation for millions left stranded as they failed to reunite with their families.

Although the snows did not put the brakes on the economic boom that has been sustained for decades, it could have far-reaching impacts. A chain reaction has affected a variety of industries, including power transmission, energy, insurance and the stock markets.

Telecom

By February 21 heavy snows caused 2.79 billion yuan in damage to the infrastructure of China Telecom, China Mobile and China Unicom, three of the top-four telecom carriers in China, as bad weather and resulting power outages damaged fixed-line networks and paralyzed base stations.

A fourth carrier, China Netcom, which operates mostly in north China, was not significantly affected.

Statistics from the State-owned Assets Supervision and Administration Commission show the three operators also suffered 1.23 billion yuan in lost revenues and recorded an increase of 1.74 billion yuan in operating costs.

Research company CLSA Asia-Pacific Markets says the impact on China's telecom industry will not be large, as estimated financial losses account for only a small percentage of their average monthly revenues. But the snow has disrupted promotion campaigns or forced operators to shelve plans, which may result in a slowing subscriber growth in the first quarter.

China International Capital Corporation Ltd (CICC) holds a different view.

An earlier report by a research institute affiliated with CICC said benefits brought by the bad weather might outweigh the negative effects. Due to the bad weather many Chinese were not able to travel to their hometowns to reunite with their families, resulting in a surge in telecom traffic, especially long-distance calls.

Provincial operators in affluent regions like Guangdong province and Shanghai could be beneficiaries of the winter weather due to their enormous number of migrant workers from poorer regions who made unusual numbers of long-distance phone calls to their hometowns.

In contrast, operators in less-affluent provinces such as Sichuan, Anhui, Hunan and Hubei, could suffer, the CICC report says. Migrant workers traditionally contribute to revenue growth of operators in those provinces when they return to home to spend Spring Festival and buy prepaid mobile phone services.

It is a common practice for operators to launch aggressive marketing campaigns with discounts to encourage workers to make more calls and send more text messages during the holiday.

Online gaming

Online gaming operators seem far removed from snowstorms, but Alicia Yap of Citi Investment Research says the bad weather could have hurt China's online games, particularly subscription games.

NASDAQ-listed NetEase reported strong earnings for the fourth quarter, but could take a hit in the first quarter of this year, usually its strongest .

"Power outages during this year's snowstorm and stalled ground transportation might have affected Internet cafes, which would hit NetEase games. We believe its quarter-over-quarter increase this year will be smaller than in 2007," says Yap.

During the winter, especially over Spring Festival, Chinese youths stay indoors and have more time to play computer games.

Online gaming company The9 Ltd on February 21 reported $61.3 million in revenue for the fourth quarter. Its profit fell due to rising expenses but still beat analysts' expectations.

But its revenue could be hurt in the first quarter as the firm runs the popular subscription game World of Warcraft.

Another gaming operator, Shanda, might not be greatly affected by the storms as most of its users play games at home. Also, it uses a free-to-play model, with users paying only items within a game instead of being charged a subscription fee.

Shanda last Monday said it earned $97.8 million in the fourth quarter.

Tourism

The Spring Festival has always given a big boost to the tourism industry as many Chinese travel during the long holiday, but bad weather damaged infrastructure at many tourist attractions, disrupted transportation and cancelled the travel plans of many.

Shao Weiqi, chief of China's National Tourism Administration, says the industry suffered a direct loss of 6.97 billion yuan by February 9.

The snowstorms damaged 824 sightseeing attractions, 5,231 buildings, 15,000 public facilities and closed or damaged 2,542 km of roadways, he says.

About 300,000 tourists abandoned their travel plans, including 60,000 from overseas who had had contracts with agencies to travel to the mainland.

Most hotels were vacant and travel to the countryside ceased. In the seven worst-hit provinces, including Hunan and Guizhou, the number of tourists dropped 28.06 percent year-on-year, with revenue declining 29.75 percent.

Nationwide the number of tourists decreased 5.2 percent and revenue dropped 5.5 percent.

Tea production

The snow hit green tea production hard and delayed sales in the worst-affected provinces by 20 to 30 days, says Wang Qing, deputy chief of China Tea Marketing Association.

That is set to spark a price hike as the output of large producers could be reduced by 15 to 20 percent.

In Zhejiang province, the second-largest tea producer in China, half of tea gardens had been damaged by February 17, a direct loss of nearly 1 billion yuan.

In some high altitude regions in Zhejiang tea planters might have lost their harvest for the year, provincial agricultural officials say.

Zhejiang, well known for its longjing - dragon well - tea, is the largest tea exporter in China.

In the first nine months of last year, Zhejiang exported 128,700 tons of tea, with a value of $236 million.

China's total tea exports during the period were 216,900 tons valued at $449 million.

China Business Weekly News

(China Daily 03/03/2008 page3)