The SARS epidemic has already had a serious impact on the economy. Premier Yu Shyi-kun indicated during interpellation at the Executive Yuan last Tuesday that the Directorate General of Budget, Accounting and Statistics had originally estimated economic growth for this year of 3.68 percent. But, if the SARS epidemic continues for one to two months, it is expected to cause a decline in economic growth of 0.03 to 0.1 percent, he said.
The premier went on to say that, in view of the severity of the epidemic in China, exports via China to the US may be affected, further devastating Taiwan's economy. At the same time, Business Week reported that China's mishandling of the epidemic has cast doubts on investors' faith in the Chinese government, and that major firms have started thinking about shifting their manufacturing bases in order to diversify their risks and avoid over-reliance on China. This is a message that demands attention.
As the SARS epidemic spread to Hong Kong, Singapore, Taiwan, and beyond to all parts of the world, this paper has called on the government to prepare for rainy days by taking measures to address the economic impact of the disease, besides focusing on preventing its further spread and safeguarding the health and lives of the people.
In particular, it must learn the harsh lesson of the epidemic and seriously ponder the high risks entailed in the Taiwan economy's skew toward China. The possibility of major multinationals shifting their manufacturing bases in order to avoid over-reliance on China suggests that our concerns are not groundless. As important investors in China, how can Taiwanese businessmen not be alerted by the risk?
Government statistics indicate that the epidemic's impact on Taiwan has not reached an unsustainable level. But since the impact is concentrated in the tourism, aviation, hotel, restaurant and other leisure industries, they have suffered severe damage, which could trigger serious unemployment problems. The government should in no circumstances relax its guard.
Take the tourism industry. Currently, a vast majority of bookees have canceled plans, leaving only people who are taking absolutely necessary business trips. On the other hand, 17 countries have designated Taiwan a country not suitable for travel. The impact has been devastating. Tour operators have virtually no business at all. They estimate that the situation may continue for as long as nine months. Members of the industry are calling the epidemic the biggest calamity to hit Taiwan's tourism industry in 30 years. More than 60,000 employees in the industry face either unemployment or pay cuts. On Tuesday, the Executive Yuan asked the Ministry of Transportation to convene an emergency inter-ministerial meeting to examine the possible response to the industry's plight.
As a result of Chinese pressure, Taiwan does not receive fair treatment from the World Health Organization (WHO). But, so far, there have been no deaths from SARS in Taiwan. All the SARS-infected patients are well cared-for, and this has won Taiwan much international recognition. The impact of SARS in Taiwan has been much less serious than that in Hong Kong and Singapore. But the Chinese government's concealment of the disease and disregard for the sanctity of human life has been fully exposed. Once foreign firms begin to withdraw from China, Taiwanese businessmen will probably suffer the most. Business Week pointed out that in the past five years China has become one of the largest producers of electronic products worldwide. Computers, cellphones, cameras; they are all made in China. Yet China initially concealed the outbreak of SARS by prohibiting WHO investigators from entering Guangdong Province to research the disease, on the grounds that this was "unnecessary."
As a result, foreigners have become highly doubtful of the Chinese government's ability to handle crises. On the other hand, the outbreak of the disease is already seriously affecting economic activity, interrupting the supply of goods from China and causing delays in the restocking of inventories. The hi-tech industry places great emphasis on the timely supply of goods.
So, as we have observed, some chief executive officers of multi-national companies are beginning to think that China is a dangerous place to invest and consider diversifying their production bases, rather than being over-reliant on China. Reports by the Boston-based Aberdeen Group lend further credence to the view that international investors are very skeptical about the Chinese government's handling of the SARS epidemic. If their product cannot be brought to market in a timely fashion, no matter how low production costs may be in China, they are quickly losing interest.
It is worrisome that Taiwanese businessmen, as OEM producers for major international firms, set up factories in China precisely to meet the demand of those international firms that production costs be further reduced. While China may have thus become one of the largest supply bases for electronic goods, statistics indicate that as many as 70 percent of such goods exported from China are manufactured by Taiwanese companies.
Should the SARS epidemic continue to spread, affecting these factories and possibly even causing them to cease production, so that they cannot deliver their goods on time, foreigners may take fright to the point of becoming unwilling to do business in China. There is a real risk that foreign firms may place their orders elsewhere. By then, no matter how low production costs in China may be, they won't make any difference. Taiwanese businessmen won't be able to do a thing about it.
In the past, Taiwanese businessmen invested in China solely on the basis of commercial considerations, such as cheap labor costs and the preferential treatment offered by China. But they ignored that while China may have begun to reform, it is still a totalitarian country in every way. By making investments without due consideration to this fact, they put not only themselves but the interests of the people of Taiwan at grave risk. Thus far, China has refused to renounce the use of force against Taiwan. Should Taiwanese investments in China fail, the economic strength of Taiwan will be diminished. Should they succeed, they will essentially help the enemy to promote its ability to invade Taiwan. In any event, trying to exploit China for cheap labor is against the interests of Taiwan. The outbreak of SARS has highlighted that, besides facing cross-strait political risks, Taiwanese businessmen must face additional problems caused by the totalitarian Chinese regime's disrespect for human rights and human lives.
Currently, all the foreign firms have lowered their estimates of Chinese economic growth. Morgan Stanley's general manager for the Asia-Pacific Region, Andy Hsieh emphasized that transparent and decisive responding measures are key factors to maintaining the foreign firms' confidence in China. As a result of the SARS epidemic, it has been proven that transparent policies are precisely what a totalitarian regime lacks the most. At a time when disappointed foreign firms are thinking about withdrawing from China, must Taiwanese businessmen continue to be obsessed with investing in China and pandering to China?
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