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Tianjin explosions cause losses of more than one billion dollars

21 August 2015

The series of explosions that devastated the port area of the Chinese city of Tianjin and killed at least 114 people are likely to have a significant negative effect on the local economy. The city has a population of 15 million people, almost twice that of London, and an economy roughly the size of the Czech Republic. A week after the blasts, losses are estimated to exceed a billion dollars.

Burnt-out cars in Tianjin - Image: Sina
Burnt-out cars in Tianjin - Image: Sina

Capital Economics, a research firm, said in a note to clients: "While most of the port has remained in operation, damage to warehousing and factory facilities has been severe," and  "disruption is likely to spread along supply chains".

According to the American Association of Port Authorities 2013 world ports rankings Tianjin ranked third globally for cargo volume and 10th for container traffic. It was one of the main ports for imports of cars into China but was also used for exports from Chinese subsidiaries of global car manufacturers.

Among the most striking images of the disaster have been the countless lines of burned-out cars, with about 10,000 new vehicles near the blast site reportedly destroyed. So far, Volkswagen Group has counted 2,700 damaged cars, most of them unsellable. Renault said 1,500 Koleos four-wheel drives were damaged. A nearby Hyundai Motor Co. logistics centre has also been forced to close.

The port is one of the major locations in China through which Tata Motors-owned Jaguar Land Rover imports vehicles. About 5,800 vehicles that had been shipped to China were stored at various locations in Tianjin at the time of explosion, the company said in a statement.

Tianjin FAW Toyota Motor Co., Toyota’s joint venture with FAW, China’s third-largest automaker, maintains factories with three production lines at an industrial park near the port where it makes the Corolla, Vios (also known as the Yaris) and other Toyota brand vehicles. Production at the plant remains suspended and the company says a total of 67 out of 12,000 employees were injured.

Last year, the plant produced about 432,000 vehicles for the domestic market. IHS Automotive, an industry analytics firm, estimates that the plant shutdown is costing Toyota’s local joint venture 2,200 vehicles a day in lost productivity.

Pharmaceutical giant GlaxoSmithKline also has a plant in the area near the blast site, and a spokeswoman told AFP that it had been unable to access it to assess the damage.

US agricultural machinery manufacturer John Deere said its factory was damaged, Bloomberg News reported. French carmaker Renault and Fuji Heavy Industries Ltd. (the Japanese maker of Subarus) said they were diverting imports to Shanghai.

European aircraft manufacturer Airbus has a giant assembly plant in Tianjin, its only such facility in Asia, and crucial to one of its most important markets. Its staff were safe, it said, but it has offered to move employees to downtown Tianjin, away from the port area, and was analysing "the logistics situation", according to AFP.

Losses in the auto sector alone were estimated at $310 million, according to the People's Daily, the official mouthpiece of China's ruling Communist Party, and the Fitch ratings agency has warned that insurance claims resulting from the explosions could amount to $1.5 billion.

Analysts say the long-term effect will depend on how long port operations are disrupted.

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