Economic Impacts China

The profound levels of epidemic-induced fear resulted in substantial negative economic impacts on affected countries, although such impacts were brief. The transmissibility of the pathogen, and the perceived risk of exposure through social interaction, induced significant behavioral change in affected populations. Consonant with the historical experience of influenza, social distancing techniques were utilized and people were cajoled into avoiding mass gatherings in public places. Moreover, the fear of contagion and the implementation of anti-epidemic measures also discouraged travel and interrupted transport services, inducing substantial declines in consumer demand, particularly in the service sector. Such adverse demand-induced shocks affected two industries in particular: retail sales and tourism. By mid April 2003, retail sales in Hong Kong had declined by 50 percent relative to mid-March indicators. Additionally, tourism arrivals from mainland China had declined by 75-80 percent, and the entertainment and restaurant industries had recorded an 80 percent decline in business. In general, the economic shock was far greater for those economies with a prominent service sector and which possessed a larger share of impacted industries (i.e., retail sale and tourism) within that sector. This may explain why Hong Kong, with its losses accounting for 2.9 percent of GDP, suffered the worst. In early April 2003, Stephan Roach, an economist with the firm Morgan Stanley, estimated the global economic cost of SARS at circa US$30 billion.20 The Far Eastern Economic Review later estimated initial SARS-related damage to regional GDP growth at US$10.6-15 billion. If SARS had continued to spread, quarantines could have affected manufacturing, which accounts for approximately 30 percent of Asia's GDP (minus Japan), by closing factories and slowing trade. If the costs of premature deaths of income-earners, lost workdays of sick employees, and health care were factored into the equation, the eventual bill for the region could total almost $50 billion.21

China sustained significant losses in its service sector, which makes up 33.7 percent of the country's GDP. SARS caused a decline in sectoral productivity of 6.8 percent during the second quarter. According to a government economist, the loss borne by the sector was 23.5 billion yuan, including 20 billion in tourism and 3.5 billion in retail sales. Based on the economic indicators of China's economy affected by SARS, the Asian Development Bank put the GDP losses in China at US$6.1 billion, or 0.5 percent of total GDP. If calculated by total final expenditure, the total loss is 17.9 billion, or 1.3 percent of China's GDP.

Aside from SARS-induced disruptions in the tourism and retail sectors, the fear-induced hoarding of essential goods and currency threatened fiscal liquidity. Moreover, calls by other countries for the quarantine of Chinese goods threatened China's export-driven manufacturing sector. If SARS had persisted and resulted in the disruption the production and supply chains, the increased risk profile associated with doing business in China would have led to a reduction in foreign investment and exports, damaging China's manufacturing sector. The end result would be a decline in the economic growth rate, on which the regime's legitimacy hinges.

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