Sat, Jul 05, 2003 - Page 8 News List

SARS impact on China's economy

By Tung Chen-yuan 童振源

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.

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