SARS

Economic Impact: Summary of latest developments

Matsushita halted operations due to SARS
Japan's Matsushita, maker of Panasonic electronics, halted operations at two of its plants in China after five local workers were infected with SARS. The company said it needed 10-14 days to confirm there was no risk of secondary infections. (FEER, 29 May)

SARS may widen deficit beyond target in China
China already has spent CNY10 billion to fight SARS, and emerging details on further spending make it likely the government's 2003 budget deficit will widen significantly beyond the official target of CNY320 billion. The anti-SARS measures will further delay the ruling Communist Party's push to rein in half a decade of deficit spending. The decision to boost state investment to create jobs reverses the budget stance adopted in March that committed the government to tighten spending and pare back public debt. That debt rose to 17% of last year's GDP, from 12% in 1997. (Dow Jones, 22 May) The SARS outbreak is also expected to lead to a loss of CNY20 to 30 billion in China's tax revenue this year. (China Daily, 19 May)

Lenders urged to grant SARS loans
The People's Bank of China has asked domestic lenders to extend short-term loans at discounted rates to sectors and companies affected by the atypical pneumonia outbreak. In a development that reflects the increasing decentralisation of China's financial sector and growing independence of individual banks, the central bank's instructions were issued in the form of an opinion rather than a directive - meaning banks can ignore them if they wish. Banking executives expect the discounted rates to be set as much as 50 basis points below the PBOC's benchmark 5% lending rate on one-year loans. (SCMP, 22 May)

SARS worsens jobless situation
The State Council has admitted that the outbreak of SARS has worsened China's already "grave'' employment situation. It said local governments must take immediate action and try to keep the jobless rate in their respective areas below 4.5% of the working population this year. The latest official statistics indicate that 7.75 million people were registered unemployed in urban areas as of the end of March, 750'000 more than that at the same time last year. The registered unemployment rate was 4.1%. (China Daily, 22 May)

European firms see revenues fall by 40%
According to a survey by the European Chamber of Commerce in China, many European corporations operating on the mainland have seen their revenues slide by as much as 40% since the SARS outbreak. The Chamber also found out that up to half of its members' non-manufacturing administrative staff were telecommuting from home as a precautionary measure against the virus. Many companies did not state any impact on investment decisions. However, it is now becoming increasingly apparent that as the crisis drags on, investment decisions will be severely delayed, according to the study. (SCMP, 21 May)

China to grant 20% discount on fees at airports hit by SARS
China has agreed to grant foreign airlines a 20% discount on landing and navigation fees to help them weather financial difficulties incurred by the SARS outbreak. (WSJ, 20 May)

Economy

Trade surplus to shrink sharply this year
The total 2003 foreign trade volume of China will reach USD680-700 billion, up 10-13% year-on-year. Exports will increase by 8-11% to USD350-360 billion, compared to a surging rate of 22.3% last year. Imports will increase 12-15% to USD330-340 billion. The increase in exports will be slowed by the gloomy world economy, the SARS epidemic and rising trade protectionism. The surge in imports, meanwhile, is led by the wider opening of the Chinese market and its increased demand for products needed for the country's economic development. (China Daily, 24 May)

Thousands of empty homes on market
During the January-April period, the number of unlet and unsold properties grew 9.6% compared to the same period last year. As much as 130 million square metres may be empty, accounting for about 19% of the country's total. During the first four months, construction was completed on a total of 42.8 million square metres of new properties, up 37.4% year-on-year. New construction was begun on 146 million square metres during the period, up 31.7%. Top officials, including former Premier Zhu Rongji, have warned that China must be wary of real estate bubbles and the corresponding financial risks. (China Daily, 22 May)

IMF task force warns of risk for deflation in some countries
A special IMF task force warned of a "high" and increasing risk of deflation in Germany, Taiwan and Hong Kong and of worsening deflation in Japan, but concluded that the risks of global deflation are "still low." It described the risk of significant deflation as "moderate" in Singapore and seven small European economies (among them Switzerland), as "low" in 16 countries, including China, and "minimal" in eight others. With regards to China, the IMF blamed falling prices on transitory factors, as well as that country's large pool of underutilized workers and excess capacity. The government's antideflation fiscal and monetary policies and "buoyant private demand and increasing real-estate prices" diminish the deflation threat, the IMF said. But it added that SARS could have a deflationary effect if not contained quickly. "Growing exports from China have added to price pressures in many sectors world-wide and these pressures are set to increase," the IMF added. (WSJ, 19 May)

Government

China grants 'Fifth Freedom Rights' to Singapore Airlines
The General Administration of Civil Aviation of China has granted Singapore Cargo Airlines permission to exercise "the fifth freedom rights" between Singapore and Chicago via Xiamen in Fujian Province and Nanjing in Jiangsu Province. This is the first time that the Chinese mainland has granted the "fifth freedom rights" to a foreign air carrier. (CCTV News, 24 May)

Bureau calls for accurate statistics to reflect economic losses
The National Bureau of Statistics urged all branches of statistics bodies to do their duty honestly to accurately reflect China's economic losses caused by SARS in May and June. (China Daily, 24 May)

China's new State asset body gets to work
With all its personnel in place and relevant regulations in the pipeline, the newly established Assets Supervision and Administration Commission (SASAC) will move on to implement its function as an investor on behalf of the State to supervise the operation of major SOEs, evaluate their performance and push forward State economic restructuring. The launch of SASAC formally separates the public management functions from those of the investors in the SOEs, which used to be combined and caused confusion in management. The commission now directly supervises 196 central enterprises that had CNY6.9 trillion of State-owned assets as of the end of 2002. (China Daily, 23 May)

China issues first foreign trade environment report
China's Ministry of Commerce issued its first yearly report on trade and investment environment in 18 countries. The report, made in line with China's foreign trade law and related regulations, detailed the situation of trade, investment, economic cooperation with the countries and trade and investment management mechanisms in those countries. (People's Daily, 21 May) The EU is on the list, Switzerland - alas - is not.

WTO

Foreign firms caught dumping
Russia, South Korea, Ukraine, Kazakhstan and China's Taiwan have dumped cold-rolled steel coil on the Chinese mainland to damage domestic industries. But after making its preliminary ruling, the Ministry of Commerce has decided to put off anti-dumping measures against companies from these regions because of a domestic shortage of cold-rolled steel coil. (China Daily, 21 May)

Finance

Good news on bad assets
China's major commercial banks reported significant progress in dealing with bad assets during the first four months of this year. China Construction Bank said it disposed of CNY19.5 billion of bad assets and recovered assets worth CNY10.8 billion. Bank of China's NPLs dropped by CNY12 billion to 20.56%. The Industrial and Commercial Bank of China saw its NPLs drop to 21.21% at the end of April. (China Daily, 24 May)

Firms exploit joint-venture loophole to renege on CNY20 billion in debts
More than 20 large state firms in Shenyang are refusing to repay debts of more than CNY20 billion, pushing the ratio of non-performing loans in the four big state banks to 34%. The companies have chosen a common approach to avoid the debt - hive off their good assets and use them to set up a joint venture with an outside firm, leaving their bad assets and other liabilities in a separate company with little or no income. (SCMP, 19 May)

Business

1st Taco Bell in China
Yum! Brands Inc. formally opened its first Taco Bell outlet in China. For the chain's launch in China, Taco Bell's fast-food format was replaced with a full-service style restaurant. The company isn't sure how popular Taco Bell will be among Chinese, who have flocked to Yum's other restaurant chains, Pizza Hut and KFC. Yum! has opened more than 8,000 KFC outlets in China since 1987 and more than 100 Pizza Huts. (Dow Jones, 21 May)

China's car production tops 160'000 in April
China produced 166'900 cars in April, up 83.6% over the same period last year. The total car production in the first four months amounted to 565'400, doubled that of the same period last year. Statistics show that private purchase strongly supported production increases. (People's Daily, 21 May)

Proton wins approval to set up JV in China
Proton, Malaysia's flagship car manufacturer, received the green light from Chinese authorities to create a joint venture to produce vehicles in China. Proton and Guangdong Goldenstar Heavy Industries Corp, a privately owned Chinese company, will each own 50% of the joint venture, located in Dongguan, Guangdong Province. Among others, the enterprise will produce the Lotus Elise sports car. Proton is the first foreign automaker to announce it plans to produce sports cars in China. (Business Weekly, 20 May)

Energy

Power shortages helping drive reform
Electricity use this year has continued to rise, jumping 18% in the first quarter, and the government reckons that 15 of China's 30-odd provinces have a shortage of electricity. Given the time required to build new power plants, those shortages are likely to last well into 2004, if not longer. The government has approved new investment for 30 new power plants. For the short term, regulators are now focusing on two areas that have long been on the reform agenda: increasing the amount of electricity traded over provincial boundaries, and charging end-users more for power used during peak hours. (Dow Jones, 21 May)

Beijing

Beijing's tourism sector slumping
Beijing's embattled tourism industry will lose around CNY40 billion due to SARS. Experts described the SARS crisis as perhaps the most dramatic shutdown of the travel industry since 1989. Beijing's tourism revenue from overseas visitors will slump by 60 to 70% compared with last year, while income from domestic visitors will fall by around 30%. The city hosted 190'000 tourists during the shortened May Day holiday, down 95.5% compared with the same period last year. Income was CNY25 million, down 99.1%. Overseas arrivals were down around 78% in April from the same month in 2002. Room occupancy of hotels with more than three stars in Beijing is only 7% on average. The rate was around 65% in previous years. (China Daily, 23 May)

Beijing April life assurance premium CNY2 billion, up 70%
Beijing's life assurers saw their premium revenues surge by almost 70% year-on-year to CNY2 billion, due to the "quick response" of life assurance companies in launching products to deal with the SARS virus. China's insurance premium revenue rose 32% to CNY144.2 billion in the four months to April. (XFN Daily News, 19 May)

Pearl River

Tax cuts to shave CNY1 billion off Guangdong revenues
Guangdong Province published a series of preferential tax policies to support enterprises seriously affected by SARS. Meanwhile special privileges have been given to laid-off workers, who now enjoy much higher tax thresholds. (People's Daily, 22 May)

Guangdong sees slower export growth due to SARS
Exports from Guangdong Province, which contributes one third of the country's total exports, slowed due to SARS. Exports produced by large and medium-sized industrial firms totaled CNY237.2 billion during the first four months of this year, up 25.4% year on year, but a fall of 1.4 percentage points over the first quarter of this year. Experts fear the full impact of the disease will be felt until the end of the second quarter or even the third quarter. (People's Daily, 22 May)

Various

China puts third navigation satellite into orbit
China successfully put its third Beidou navigation and positioning satellite into orbit, a move indicating China has completed its own satellite navigation and positioning system. The China-made system will play an important role in economic matters, offering efficient navigation and positioning services for the sectors of transportation, meteorology, petroleum production, forest fire prevention, disaster forecast, telecommunications and public security. (Xinhua, 25 May)

US hits China, Iran with missile sanctions
The U.S. has imposed sanctions on China and Iran for ballistic missile co-operation, which may deprive a large Chinese conglomerate of more than USD200 million in exports to America over the next two years. The sanctions imposed on North China Industries, known as Norinco, are believed to be the most severe penalty ever levelled against a Chinese entity. (SCMP, 24 May)

Markets

Shares end up; no immediate sale of State-shares seen
China shares ended higher after Li Rongrong, director of SASAC, said the government isn't rushing to sell state-owned shares as such a move "requires a certain environment and conditions." The issue of what to do with non-tradable state-shares, which make up about two-thirds of all listed companies' shares, is a sensitive one, as dumping them on the open market could cause the markets to fall. Although such a plan was scrapped last year, it has remained an overhang on the market. (Dow Jones, 23 May)