Sun, Jun 01, 2003 page11

• SARS will have lasting impact

  ECONOMIC CONSEQUENCES Analysts are predicting that it will take many months before the full effects of the outbreak are realized throughout the Asia-Pacific region

  • NY TIMES WIRE SERVICE
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  While SARS infections have ebbed across east Asia, the economic consequences will continue to be felt for months to come, according to business executives and economists.

  Tourism is proving very slow to recover across the region. Retail sales have only begun to rebound, leaving stores reluctant to order more from factories because they are still stuck with huge inventories of goods that went unsold at the height of fears over SARS.

  The effects of the continued sluggishness are being felt well beyond Hong Kong. Electronics manufacturers complain that the development of new consumer products has been badly delayed because companies barred engineers from traveling to the US, Taiwan and China after the SARS outbreak.

  That means stores around the world will have fewer innovative computer printers, scanners and wireless network devices on the shelves next Christmas, said Frank Huang (黃崇仁), the chairman of the Taipei Computer Association (台市電腦公會).

  "There will be, because of SARS, a reduced number of products on the market, that is sure," during the crucial Christmas selling season, said Huang, who is also the chairman of Power Chip, one of Taiwan's largest makers of computer chips. The development of new computers has been less affected than the development of computer peripherals like printers, he added.

  Yet some encouraging signs remain for Asian economies. Exports are still strong, especially from China and especially to Europe, as the rising euro has improved the competitiveness of Asian goods. Most Asian currencies are formally or informally pegged to the sinking US dollar, making Asian products less expensive in Asian markets.

  And the number of new cases of SARS is down sharply from the levels of two months ago. China and Taiwan each reported seven new cases of SARS on Friday, while Hong Kong had four new cases.

  The strong divergence between slow domestic demand and brisk exports has made it especially difficult for economists to gauge economic output. Sometimes misleading statistics from image-conscious governments have made matters worse.

  China's government-controlled news media, for example, recently said that economic output in China was 8.9 percent higher in April than a year earlier. But investment bank economists say that this figure just shows that the Chinese economy expanded very fast in the third and fourth quarters of last year and the first quarter of this year.

  Comparing economic output in the second quarter of this year to output in the first quarter, estimates range from Morgan Stanley's prediction of zero growth to J.P. Morgan's assessment of minus 2 percent. Most economists expect growth in China to resume in the third quarter, but not until the fourth quarter is the Chinese economy expected to resume the 7 to 10 percent growth that it enjoyed until this spring.

  On Thursday, Hong Kong's government cut in half its estimate of economic growth this year, to 1.5 percent, with most of that growth having occurred in January, February and early March, before the SARS outbreak started in mid-March and crippled demand.

  "The economy was actually doing very well until we hit SARS," said Antony Leung, Hong Kong's financial secretary. Even before SARS, however, Hong Kong was suffering from severe deflation, and Leung predicted on Friday that because of SARS, the general price level here will drop 2.5 percent this year, instead of the 1.5 percent previously forecast by the government.

  Economies have also suffered in other countries with large SARS outbreaks, according to assessments issued this week. Taiwan's Council of Economic Planning and Development reported steep declines in many industries this week, while Morgan Stanley warned that Singapore appeared to be headed into another recession.

  Andy Xie, a Morgan Stanley economist, said that companies ranging from sausage makers to paper makers had been complaining to him that stores in China had stopped ordering new supplies because of bulging inventories of unsold goods.

  At Lee Fung China Ware, a large store in downtown Hong Kong selling porcelain vases and bone china plates in many hues, sales are deeply depressed, said Lily Wong, a sales representative. Foreign tourists used to account for a third of sales, yet not one has come to the store since March.

  Sales to local residents leaped on May 23 in the euphoria that erupted when the World Health Organization lifted its advisory against travel here, Wong said. But these transactions plunged again a day later and remain 40 percent below their pre-SARS levels; the store has told its supplier, a factory in southern China, to halt shipments.

  Multinationals' long-term enthusiasm for investing in China, from building factories to setting up new sales networks, appears to have survived the SARS outbreak this spring.

  But company officials warn of delays in negotiating deals and performing due diligence inspections in China, however, which could easily reduce the pace of investment flows through the rest of the year.

  A few businesses are still entering the market. Heller Ehrman White & McAuliffe LLP, a San Francisco-based law firm with 660 lawyers, has just hired 19 lawyers from a firm here in order to expand substantially its Hong Kong practice.
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