The impact of the Japanese earthquake on China started unfolding about two weeks after the destruction, as the supply chain disruption began causing semi-shutdowns of some automotive and electronics manufacturers and the nuclear crisis also threatened to derail the country's ambitious nuclear power development plan, IHS Global Insight senior China economist Xianfang Ren said in a research note.

"The impact of the Japanese quake on China has started showing in the manufacturing sector, particularly the IT and electronics sector and automotive sector which heavily rely on components imported from Japan," he said.

"Supply chain disruption is the main concern at this moment, and the slower the production in Japan recovers, the larger the impact will be in the future as inventories are being drawn down quickly to meet demand."

Last week, a number of Chinese auto and electronics producers started reporting production cuts. The Dongfeng-Nissan Auto Company's facility in Hubei province's Xiangfan city, is currently running at just one-third of normal capacity and workers are working half-days, according to local media reports. The output cut has been entirely due to disrupted supply of engines and other key components imported from Japan. Dongfeng-Nissan is currently the largest Sino-Japanese auto joint venture established in mainland China, and heavily relies on components imported from Japan for its higher-end models such as the Teana [Maxima].

So far, other major Japanese-invested auto companies, such as Toyota, Honda and Mazda, have not reported any major disruptions of supply, the note said.#

Right after the Japanese quake, a spokesperson from Hongda (Guangzhou) claimed that 90% of the company’s components had been localised and therefore no major disruptions to production were expected.

The electronics sector has also been jolted by the quake, as the sector heavily relies on Japan for the supply of such key components as semiconductors, memory chips, and so on. In Jiangsu province, China's key electronics production hub where over 7,000 Japanese firms operate, a number of local Japanese-invested electronics companies have reported 8-10-week delays in components delivery from Japan and some companies are in semi-shutdown.

Expectations for tighter supply have already driven up prices for IT and electronics products in many local markets in China.

The Japanese nuclear crisis following the quake is also threatening to slow down China’s nuclear power development drive. On 16 March, China's State Council announced that the government would conduct a safety review of all nuclear power plants that are either in operation or still under construction, in the wake of the nuclear reactor crisis in Japan.

In the meantime, the government has also halted the review and approval for all new nuclear plants, while promising to "readjust and improve" the medium and long-term plan for nuclear power development. Currently, there are 28 nuclear reactors under construction in China, about 40% of the world's total.

Two different voices have emerged in the public discourse regarding the prospect of China’s nuclear power development. One is that there will be no change of policy course despite the crisis. Zhang Guobao, who was China's energy chief until January this year, told local media recently that the Japanese nuclear crisis will not change China's nuclear development strategy. On the other hand, there are also growing voices calling for a slowdown of the frenzied nuclear development drive which has had strong backing from local government and industry interests. China Electricity Council (CEC) has already proposed to adjust China's nuclear development strategy, saying that the nuclear power generation capacity will probably be 10m kW less than what it had initially estimated for 2020 - 90m kW. In the meantime, the CEC also expects that nuclear development in inland China will be stalled, while initially it expected the construction of China's first inland nuclear power plant will be inaugurated this year.

Ren said: "The Japanese quake's impact on the Chinese economy is mainly transmitted through the supply chain, with Japan being a major supplier of key raw materials and components for China’s manufacturing sectors - particularly auto and IT/electronics.

"Japan is currently China’s third largest trading partner, and a considerable portion of such trade involves China importing raw materials and components for processing and assembly in mainland China. Chinese manufacturing imports from Japan made up about 17% of the country’s total such imports during 2000-08, which, although smaller than Taiwan and South Korea’s exposure to Japanese imports, is still quite significant. Of China’s total imports from Japan, over 20% are integrated circuits, steel, auto and auto parts, according to China’s commerce authority.

"So far, the component supply disruption is still disparate and the impact on production is modest, although the situation could take a turn for the worse quite rapidly in the future if manufacturers run down inventories while supply recovers only slowly either from Japan or from alternative sources of supply.

"On the nuclear energy front, there have been lots of excesses with the sector, just as with many other new energy sectors, and the country has basically been at its top capacity building nuclear power plants in the past few years - which is causing shortage in supply of nuclear equipment and technicians. The nuclear incident in Japan happened at a time when China is finalising its five-year plan for energy development, so there is a likelihood that policymakers may take a more conservative approach in the short term, taking into account both the safety issue and the supply constraint for nuclear power plant equipment and technicians.

"Nonetheless, in the longer term, it is quite unlikely for China to back out of the nuclear development drive, as China will still count on nuclear energy as a saviour that will help China meet the energy security and sustainability challenge."