On June 24, the World Health Organization (WHO) officially lifted its Beijing travel advisory and declared the city to be free of SARS. SARS had wreaked havoc in China for three months. How great an impact will it have on China's economic development? What does the economic future of post-SARS China look like?
The heaviest impact SARS had on the Chinese economy was on demand, or, to be more specific, on consumption. It had less of a destructive effect on the supply side. Consumer retailing increased by 9.2 percent year on year in the first quarter, 7.7 percent in April and only 4.3 percent in May. These are the lowest increases since the 1990s. SARS has not had a major impact on the manufacturing industry. Industrial added value of enterprises on the national level increased by 17.2 percent year on year in the first quarter, 14.9 percent in April and 13.7 percent in May.
The service industries are the most severely affected, including tourism, aviation, hotels and entertainment. In the transportation industry, for example, passenger numbers saw an increase of 5.3 percent year-on-year in the first quarter, but a decrease of 6.9 percent in April from the same month last year. In May, passenger traffic fell 41.5 percent from the year before. In May, business incomes in the social services industry fell by 37.4 percent year-on-year.
In particular, business incomes fell by 65.1 percent in the hotel industry, 58.3 percent in the spa sector and 45.3 percent in the entertainment industry.
The effects of SARS on Chinese exports are so far very limited, but there will be a lag effect. Exports increased by 33.5 percent year on year in the first quarter, 33.3 percent year-on-year in April, and 37.4 percent year-on-year in May.
There are two main reasons why Chinese exports grew in April and May while thousands fell ill -- support from the government and the fact that the effect of the SARS epidemic had yet to filter through the economy.
First, the Chinese government strengthened its policy support for exports and May export tax refunds increased by 4.6 times year-on-year.
Second, the inability of many foreign businesspeople to travel to China to discuss business and foreign concerns about the epidemic's impact on goods in April and May, is having quite an effect.
At the Canton Trade Fair this year, for example, signed contracts amounted to only US$4.42 billion, a mere 26.3 percent of last year's volume. These effects will gradually make themselves felt during the third and fourth quarters, but did not affect exports during April and May.
The effects have already had an impact on foreign investment in China. Foreign investment contract value during the first quarter this year grew by 59.6 percent year-on-year, and the real amount increased by 56.7 percent. In April, foreign investment contract value grew by 27.2 percent year-on-year, and the real amount grew by 37.2 percent. In May, the figures were 17.6 percent and 39.5 percent, respectively. Even though the rate of foreign investment still grew rapidly in April and May, it was much lower than in the first quarter.
Foreign investment contracts are contracts for future investment, and current real investments are the results of past foreign investment contracts being executed. The value of foreign investment contracts signed in April and May have therefore fallen substantially, and this will affect the real amount of future foreign investment in China.
However, the signing of many foreign investment contracts may have been only delayed because of the effects of SARS and not necessarily cancelled. Many big international manufacturers have not changed their Chinese investment plans as a result of the outbreak. There may therefore also be a foreign investment lag effect -- foreign businesses may increase the speed of their Chinese investments once the SARS epidemic has come under control.
The Chinese economy grew by 8.9 percent in April, one percentage point less than the 9.9 percent during the first quarter. Growth forecasts for May are even lower. Official Chinese forecasts for GDP growth this year have fallen from 9 percent to 7.5 percent.
Forecasts of the effects of the SARS epidemic by international financial institutions are very close to official Chinese estimates. Early last month, for example, Deutsche Bank forecast that Chinese economic growth this year may exceed 7.5 percent, and in the middle of last month Morgan Stanley adjusted Chinese economic growth this year up-wards from 6.5 percent to 7.5
percent.
The SARS epidemic certainly had an impact on the Chinese economy in April and May, but it did not fundamentally destroy the foundation for China's economic development. Basically, China's economic activities had returned to normal in the middle of last month. The SARS lag-effect may cause future Chinese exports to slow a little, but it may also revive the rapid growth of foreign investment in China.
Tung Chen-yuan is an associate research fellow at National Chengchi University's Institute of International Relations.
Translated by Perry Svensson
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
Since the Russian invasion of Ukraine in February 2022, people have been asking if Taiwan is the next Ukraine. At a G7 meeting of national leaders in January, Japanese Prime Minister Fumio Kishida warned that Taiwan “could be the next Ukraine” if Chinese aggression is not checked. NATO Secretary-General Jens Stoltenberg has said that if Russia is not defeated, then “today, it’s Ukraine, tomorrow it can be Taiwan.” China does not like this rhetoric. Its diplomats ask people to stop saying “Ukraine today, Taiwan tomorrow.” However, the rhetoric and stated ambition of Chinese President Xi Jinping (習近平) on Taiwan shows strong parallels with