Who Says SARS is Benign?

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Last updated at: (Beijing Time) Friday, June 13, 2003

Who Says SARS is Benign?

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Despite huge impact of SARS on industries like tourism, aviation, catering and retail, official statistics show that China registered a high GDP growth rate of 9.9 percent in the first quarter and the projected sharp drops in April and May did not come true.

Investment in fixed assets during the first four months this year grew by 30.5 per-cent over same period of the previous year. As the spread of severe acute respiratory syndrome (SARS) is under increasingly effective containment, some economists are forecasting a U-shaped revival. Alleging that the economy may receive some extra stimulation from the SARS, they have even described SARS as a "benign crisis."

However, other economists argue that people should not be too optimistic about the aftermath of the epidemic. Temporary as it seems, the crisis is likely to last for a long time considering the vast area it has affected. SARS threatens the economic process of the whole world and no one should jump to the conclusions that it will only exert a positive influence on China's economy even before the epidemic is really brought under control.

SARS Will Not "Infect" China's Economy

Hu Angang (Economist and Director of the Center for China Study, Tsinghua University): Revenue from the tourism sector accounts for only a tiny part of China's GDP, 1 percent in the early 1990s. Even after the boom in the last 10 years, it makes up just 5 percent now. The inevitable losses for the tourism sector will not be so severe as to affect the whole country.

Two factors determine economic developments: the inner and the outer. The inner factor is the decisive one, such as investment, consumer spending, technological upgrading and so on. As 14 percent of China's GDP comes from agriculture and over a half from industry and manufacturing, which have not suffered as heavily from the epidemic, SARS is unlikely to crush the overall economy. Our economy has demonstrated great potential to propel itself. During the first quarter, industrial economy contributed 55 percent to the overall economy. China's GDP growth this year may still reach 9 to 10percent. Even considering the possible 0.3 to 1 percentage point of loss caused by SARS, there is a good chance for its growth rate to remain between 8and 9 percent this year.

As a matter of fact, the SARS outbreak only dampened a limited number of cities, regions and industries. When coping with the crises, we ought not to overact or exaggerate its influences.

When it comes to influences on overseas investment in China, we should, first of all, be clear about the nature of the SARS epidemic---it is a crisis with positive influences. What investors stress is long-term investment instead of shout-term speculation, In this sense, China remains a great attraction to foreign investors.

Also, the Central Government has sufficient financial resources to combat SARS. The first-quarter fiscal revenue of China exceeded 500 billion yuan ($60.46 billion), equal to 53 percent of that of 1998, With the ever-growing economic strength, China will for sure defeat the SARS epidemic in the end.

China's economy has grown increasingly mature, particularly in terms of the capability to deal with the outside impact. In the past six years, it went through the Asian financial crisis in 1997, the disastreous floods in 1998, and the global economic recession between 2001 and 2002. Despite the global sluggishness, China performed extraordinarily well in growth of economy, trade and investment.

Different economies respond differently to outside impacts. Even the dame economy has different periods of development. After the catastrophic impact of the floods in 1998, people strengthened their capabilities in combating disasters and post-disaster reconstruction. On this account, the annual economic growth rate of 1998 still hit 7.8 percent.

No Reason to Be Optimistic

Han Kang (Director of the Department of Scientific Research of China's National School of Administration): SARS will exert negative influences in six aspects: consumer demand, investment, employment, mobility of human resources, deflation and balance of international payments.

We have no reason to be optimistic about the after-effects of the SARS epidemic on China's economy. Considering the large area hit by the disease, in my view, the direct impact of SARS will, at least, last for six to eight months.

As a worldwide epidemic, SARS incurs new challenges to the modernization process of human society. Some scholars have pointed out that considerable amount of resources must be invested in tackling the whole new topic of humanities in order to find out the how-to of the whole catastrophic event. It is hasty to jump to conclusions that the SARS epidemic will exert positive influences on China's economy before it ends.

First, the actual situation of China's market economy determines the severity of the negative influences.

Since China is still in the primary stage of the market economy, it currently relies heavily on tangible trading activities.

As SARS limits people's social activities, trade will in turn be severely impacted. Some people suggest developing B2B e-commerce against thin market transactions. This measure, in my opinion, can only prove to be effective in a long term, for a nation's financial and virtual market system, the basis for e-commerce, cannot be developed in a short time.

Second, SARS hit accumulation of social wealth and demand growth alike. The 1998 floods are an irrelevant reference. The war against SARS is dramatically different and consumes more social wealth. Although it has led to the rise in demand for certain goods, it is hard to tell whether the overall demand will resume in a short time.

For the time being, in order to prevent spread of the disease, people reduce their economic activities, remain at home, go shopping less, travel less and postpone trade and investment schedules. As a result, consumer spending nationwide has dropped.

Third, we should not neglect the lagging effects of SARS on social and economic life.

SARS not only crushed the present economic life, but it's likely to exert significant influences on our economy in the future. The lasting after-effects are determined by social psychology and public expectations of the future.

According to our study, social psychology already shifted from the original scare and suspicion to uncertainty of the economic prospect, including uncertainty of consumer spending and enterprise investment. Citizens are estimated to increase savings deposits and become more prudent in consumption. Enterprises, especially small and medium-sized ones, will grow reserved in investment and lift their abilities to handle crisis.

As it is hard to tell how long SARS will last, there is little possibility to conduct accurate analysis of its influences on China's economy for the moment considering the many variables.

Crisis is Always Negative

Shao Daosheng (research fellow with the Institute of Sociology of the Chinese Academy of Social Sciences): One of my friends, Mr. Hu Angang studies economy, whereas I concentrate on sociology. We have many shared views on various issues of Chinese society. However, I cannot see eye-to-eye with him recently on SARS being a "positive" crisis.

There is no denying that SARS is a social crisis. Nevertheless, it is unnecessary to classify it as a "positive" crisis.

Mr. Hu cited many reasons to justify his "positive" definition, such as the huge domestic market of China, growing economic strength, huge financial revenue, the government's ability to react to external impacts and carry out macroeconomic administration and the Chinese people's concerted efforts in the face of a national crisis.

No matter how large is China's market, how strong is its economy and how capable is the Chinese Government to deal with external impacts, I'm sure the situation would have been irremediable for the moment if without the decisive measures taken by the Central Government as of April 20. In my view, there exists no "positive" crisis. Crisis is danger in itself. We are only cheating ourselves when labeling on it with "positive".

If we extend this kind if definition to other social issues, we can identify all problems as "positive". Then, there will be "positive" corruption, unemployment and crime, and so on. Since our society always has positive factors to overcome these problems, we do not need to prepare for the worst as long as we are growing rich.(Beijing Review)

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