Concern SARS To Eventually Hit Investment In China
Concern SARS To Eventually Hit Investment In China
Owen Brown Dow Jones Beijing
As health authorities Tuesday continued to upgrade the extent of the spread of a potentially fatal respiratory virus, a key concern for China's economy remains the possible downside for foreign investment.
So far analysts expect China's tourism and hospitality industries to be the hardest hit by public health concerns arising from severe acute respiratory syndrome, or SARS.
Postponed travel plans by foreign business travelers have been compounded by a government decision to shorten a seven-day Golden Week for the May Day holiday to three days to prevent the virus reaching beyond already hard-hit cities such as Beijing.
But as the numbers of SARS infected cases continues to rise, partly due to the government's appeal for local health authorities to come clean on the actual numbers, the impact could expand beyond the tourism sector.
Japan's third largest automaker, Nissan Motor Co. Ltd admitted Tuesday the China launch of its Sunny model could be delayed due to a travel ban discouraging foreign experts visiting the company's Guangzhou plant.
But a recent UBS Warburg survey of listed companies with manufacturing operations in Guangdong, the province hardest hit by the SARS epidemic, found the disease had minimal effect on their production.
A CLSA survey of Taiwan technology companies with mainland operations also found SARS hasn't yet caused any disruptions to business.
One analyst told Dow Jones Newswires that indications so far suggest that foreign businesses have been able to keep their China units operating effectively through e-mail and teleconferencing, despite the cutback in travel.
But if the epidemic were to drag on, that might affect the ability of foreign business executives to travel to China to sign investment contracts.
While postponed travel only delays signing, investor confidence might also be a potential SARS victim and that would have far greater consequences for China's economy.
Foreign direct investment, along with trade-related industrial production and state spending, has been one of the key drivers of economic growth with hit a seven-year high of 9.9 percent year on year in first quarter 2003.
Donald H. Straszheim, head of California-based Straszheim Global Advisers, said a regular misgiving about doing business in China has been the lack of trust in the government.
"To date, from a western perspective, China has flunked the veracity test on SARS," Straszheim said.
He pointed out that actual foreign direct investment in China grew by more than 56 percent year-on-year in the first quarter of 2003. "Now a real question is whether SARS fears will slow foreign direct investment in the future," Straszheim said.
DBS Bank economist Chris Leung said indirect economic losses could be large, especially if FDI inflow into China were to decelerate sharply. "The negative impact of SARS on the economy shouldn't be underestimated in the second quarter," Leung said.
Guangzhou Trade Fair, held this year despite a World Health Organization advisory against travel to Guangdong province, reported transactions worth US$730 million were signed in the first three days of the annual expo, China Business Weekly reported Tuesday. That's well down from the $16.8 billion in orders signed during the 2002 trade fair.
And some of this year's deals were made using an online platform to connect with more than 300 foreign business partners, rather than by visitors to Guangzhou.
Despite concerns about the effect on foreign direct investment, China's tourism industry continues to bear the brunt of public health concerns prompted by the spread of SARS.
China National Tourism Administration has instructed local travel agencies to limit its promotion of packages to rural areas to curb the spread of the infection.
China CYTS Tours Holdings Co. Ltd, one of the country's major travel agencies, said the cancellation of the week-long Labor Day holiday to curb the spread of the SARS virus will have a "major impact" on its business.
Along with hotels catering for business travelers, local airlines passenger loads have been savaged by the cutback on business travel to the region prompted by the WHO travel advisory.
China Eastern Airlines, which lists part of its assets in New York, Hong Kong and Shanghai as China Eastern Airlines Co. Ltd (CEA), last week reported a significant reduction in passenger traffic on international flights, including those SARS-afflicted Hong Kong. The airline didn't provide specific figures.