Business

Olympics will have some negative financial impact

As the Olympic Games approached, the Chinese government sent businesses around the capital city an unmistakable message: China would do everything possible, including shutting down whole industries, to ensure the games' success.

Restrictions quickly followed. In what turned out to be a futile effort to rid the city of air pollution, officials blocked heavy truck traffic from entering Beijing and closed nearby factories. The government tightened visa restrictions to keep out protesters, a move that prevented foreign buyers from visiting the country's booming factories and filling Christmas orders.

The measures, analysts said, have paralyzed industries and will be felt around the world long after the Olympics.

With China dominating global production of many goods, U.S. consumers will likely see higher prices if not outright shortages for products such as mobile telephones manufactured in the affected areas. The Olympics restrictions will also affect world supplies of auto parts, semiconductors, vitamin C, steel and domestic Chinese supplies of cement and aluminum.

“We have a pretty good idea that the restrictions will slow things down, but we won't know the true impact until September,” said Richard Brubaker of the Shanghai-based consulting firm China Strategic Development Partners. “Because of the Olympics and other factors, there'll no doubt be higher prices.”

For foreign investors, the Olympic restrictions, coupled with rising energy and labor costs in China, have shaken confidence in the country's reliability as a world supplier, sparking searches for other sources of cheap labor, said Steve Keifer, a vice president for GXS, a Maryland-based firm that helps companies streamline their supply chain.

Keifer said U.S. companies could move production lines to Mexico, Costa Rica and even Argentina to replace China, and European companies could go to Eastern Europe. Soaring fuel costs have also thrown into question the wisdom of producing goods so far from their markets.

“(The Olympics' impact) is one of a number of things happening associated with China to make companies rethink their sourcing strategies,” Keifer said. “It's adding to the larger psychological effects of risk associated with working in China.”

Chinese officials have stayed quiet about the economic impacts of the Olympic restrictions while touting what they say has been the boon Beijing's received in hosting the games.

A news release on the Beijing Olympics Web site said the games have infused $13.4 billion into Beijing's economy since 2004 and created 1.8 million new jobs.

  Comments