Wednesday, March 16, 2011

Japan Nuclear Disaster Will Impact Chinese Industry

The full impact of the nuclear emergency facing Japan is unknown.  The physical effects of reactor meltdowns and the spread of radiation are horrendous possibilities.  The economic fallout from this disaster is not nearly as grave a threat to human life, yet it bears consideration.

Damage to the Japanese economy will seriously degrade the supply chains of manufacturers in China.  Chinese companies will need to jump through hoops to source some components.  This will provide even greater impetus for China to entice manufacturers to locate their entire production chains on the mainland.  Value chain integration isn't just for rare earth metals anymore.

Full disclosure:  Long FXI with covered calls.