The Wall Street Journal-20080129-Politics - Economics- Severe Storms Beleaguer China- Snow- Freezing Weather Slow Food- Fuel Delivery- Season Takes a Fatal Toll

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Politics & Economics: Severe Storms Beleaguer China; Snow, Freezing Weather Slow Food, Fuel Delivery; Season Takes a Fatal Toll

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SHANGHAI -- Severe winter storms, which have hit much of China with snow and freezing temperatures, are threatening a national economy already strained by energy shortages and mounting inflation.

Deliveries of a range of goods, such as coal and fresh food, have been disrupted across much of China as road, rail and air transport was slowed or halted by the unusual weather that during the past week has struck areas accustomed to milder winters. Heavy snow has killed 24 people in China since Jan. 10, according to the Xinhua News Agency.

The government called for emergency cuts in energy supplies to manufacturing industries to ensure there was enough power to warm homes and keep hospitals, railways, broadcasters and the financial system operating. China's decisions could have ripple effects across the world. Many aluminum makers, whose smelters require a lot of electricity, have shut down production in storm-affected areas. The shutdowns could put upward pressure on world aluminum prices.

China's move Friday to suspend coal exports -- in an effort to speed supplies to domestic power producers, whose inventories have fallen to potentially dangerous levels -- has also jolted world coal markets.

With China's fast growth -- its economy expanded 11.4% in 2007, the fastest since 1994 -- depending on the ability to move goods and people quickly, the current disruptions could have broader economic and social implications. Even if the storms end over the next few days, their impact may reverberate for some time as the nation also contends with coal and power shortages. In an effort to ease shortages, the government has given priority to food and coal transportation.

Chinese leaders are also struggling to soften the blow of the storms ahead of next week's lunar New Year holiday, when tens of millions of Chinese people return to their hometowns. Already, hundreds of thousands of people have found themselves stranded at train stations across China as power outages on electrified lines have disrupted service.

Reliable road, rail and port connections, and steady supplies of electricity, have been an important competitive advantage for China in attracting investment. The government has already announced heavy investment in new infrastructure this year, including $41 billion to expand railroads and $35 billion to improve electricity grids.

As snow, sleet and rain fell in Shanghai, China's financial center, for the third day in a row yesterday, the Shanghai stock market's main index fell 7.2%. Shares of airlines and other companies expected to be hurt by the bad weather fell sharply.

Investors also worried that storm-related supply disruptions would further fuel inflation, which is already at its highest level in more than a decade, and prompt the government to raise interest rates, slowing the economy and depressing share prices.

The bad weather highlights weaknesses in the country's energy policies. In an effort to rein in inflation, the government has resorted to price controls, including a cap on electricity and gasoline prices. Meanwhile, market prices of coal and oil have continued to rise. Some analysts say that has led refiners and electrical generators, whose profits are getting squeezed, to limit output.

China's National Development and Reform Commission, which sets the country's industrial policy, however, insisted yesterday that coal shortages, and not electricity-price caps, are the root problem.

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Bai Lin and Ellen Zhu contributed to this article.