Thursday, July 12, 2012


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Miracle in China Battle Against Sars

00 is an arduous year for the global economy. As the businessmen and economists were still evaluating the impacts caused by the war in Iraq, another disaster supplanted the war as a new challenge to the world, which was the deadly Severe Acute Respiratory Syndrome, or Sars, epidemic that has leapt to four continents and seventeen countries. For all the panic that Sars has generated, it has undoubtedly undermined China’s and Hong Kong’s economy. According to the figures of “Far Eastern Economic Review” , the estimated economic loss of China and Hong Kong were US$. billion and US$1.7 billion respectively. Actually, most of us may not discover that business opportunities have been brought along with the diseases as well. Howsoever, both of the threats and opportunities brought by the epidemic should not be neglected.

Obviously, hotels and international air carriers have already taken an enormous hit, which was a huge problem for Hong Kong, but a minor one for China. Tourism is the second largest invisible earnings of Hong Kong. Its earnings together with that of other tourism related industries, e.g. retailing, catering and hotel industry, account for 10% of the total GDP of Hong Kong. As a result, Hong Kong was hammered severely when the epidemic ravaged the world, given its high exposure to collapsing retail and tourism sectors. Originally, March was regarded as the peak season of tourism, but the outbreak of Sars fundamentally turned the opportunity into threat. Government of the United States, Canada, Australia and other countries warned its citizens not to travel to the infected places like Hong Kong, China and Singapore, etc. Therefore, the number of tourists dropped dramatically and the totally loss was estimated to be $ billion Hong Kong dollar approximately. Actually, the situation in China was more or less the same. The occupancy rate of hotel dropped to 10-0% merely. According to the figures of China International Travel Services (CITS), 50% of the confirmed tours has been cancelled or delayed. The problem was not limited to outbound travel only, but also the internal travel within China. People in China did not want to travel to the province like Guang Dong although it is a well-known tourist attraction. Anyway, the hit of tourism in China was not that serious than that of Hong Kong due to their differences in economic structure.

Due to the suffering of tourism, airline industry was harmed directly. Since the “11” Incident, the future of airline industry is unforeseeable. The situation was even worsened due to the increase in oil price caused by the war in Iraq. When most of the major airlines in the world were deciding layoff or restructuring in order to alleviate financial burden, the spread of Sars appeared to be an additional challenge to the industry. For instance, the two Hong Kong-based airlines, Cathay Pacific and Dragon Air, reduced the number of flights by one-third in April. The spread of Sars might be an unprecedented challenge to the industry. However, they could not control and what they could do was adopting wait-and-see strategy. Although the flight schedules return to normal now, the economic losses obviously affect the long-term strategies of the airlines as it really takes time for them to recover from the tremendous losses.

Catering and retailing were another two industries being harmed severely due to the chain-effect brought by the tourism industry. Actually, almost all businesses could not avoid from being hurt by Sars. In order to minimize the chance of being infected, people preferred staying at home instead of going to the crowded regions. Demand for products and services dropped dramatically and some of the firms might not be able to resist the hit and they were forced to terminate their businesses. There were about 100 restaurants in Hong Kong have gone out of business and perhaps ,000 workers have lost their jobs. For those that can survive till now, they are suffering from long-term impacts still. For instance, Hong Kong jewelers were prohibited to participate in the International Watches and Jewelry Exhibition held in Switzerland. By quoting the sales record as reference, Hong Kong jewelers got 0%-0% of the annual sales volume in that exhibition last year. For some medium enterprises, the proportion may be even higher. Originally, they wanted to grab the chance of participating in the exhibition to get more orders from overseas buyers. However, opportunities were turned into threats. They lost the chance to deal with the potential buyers face to face and thus their competitors, especially those from Thailand and India took advantage of the situation and got more orders. Together with the decrease in demand from tourists, the jewelry industry must change its strategies in order to get rid of the predicament and compensate from the losses.

Actually, the epidemic brought tremendous impacts not only to the business sectors, but also to the Hong Kong Government. Financial deficit has been a major problem for the government officials to deal with. From the first quarter of 00, the amount of financial deficit is HK$44.7 billion. Financial Secretary Anthony Leung pledged to set about reducing the administration’s swelling budge deficit. However, the outbreak of Sars further aggravated the deficit as it doubtlessly slow down the economic growth. With crimping tax revenues as it pushed up public health spending, the financial deficit could easily raise to HK$80-0 billion this fiscal year. Local firms would suffer directly as higher borrowing cost would be triggered by the downgrading of Hong Kong’s credit rating after the spread of Sars.

China is really a market that multinational corporations cannot afford not to invest in. Thus, one of the major concerns of the world is that whether the outbreak of Sars would affect the investment environment of China. In a sense, China is fortunate that there was a slowdown amid a gigantic boom merely. Cheap labor, cheap land and huge market provided in China are the major factors that foreign investors cannot resist. These factors will endure beyond the Sars crisis as investors viewed the impacts of Sars as a short-term blip rather than a long-term decline. Foreign investments will continue, as investors just do not want to pay the difference for the same components in Eastern Europe or Mexico.

During the spread of Sars, China was the place nervous executives were afraid to show up. Bevies of business leaders including Boeing CEO Phil Condit and Motorola Chief Executive Chris Galvin have cancelled the trips. However, the impacts were not as great as we expected. Business relationships were being maintained via phone, teleconference and email. Investments were not cancelled, but waiting for formal negotiation on the ground merely.

In fact, the Sars crisis induced the foreign investors to think of diversifying their business in order to minimize the risk. Maybe it was the first time for them to be alert of the possible risk of investing in China. They learned lesson from the crisis and became more cautious and prudent. For instance, Kodak is now thinking of plans to minimize the risk of its business in China as the sales of films dropped dramatically since the Labor Holidays were shorten in May. Actually, foreign investors also developed specific contingency plans to deal with the possible return of Sars in future. Obviously, risk management becomes an important part of their business nowadays and it has never been such emphasized and concerned. Anyway, foreign investment would not be affected much as the opportunities in China are irresistible.

Indeed, the matter they concern most was the long-term impact on China, the whole perception of transparency, government policy. When the epidemic was spreading in China, a state-controlled media repeatedly has told the public that the epidemic was “under control” even when it was not. Although the China government devoted a lot of effort on building an image of democratic and open government, it seems that its reputation ruined since the crisis. Obviously, some of the actions by the local authorities have cost China some reputation in the rest of Asia and it directly affects the confidence of foreign investors.

Opportunities brought along with the epidemic might be neglected by the public. In fact, some of the business might gain in the crisis instead of suffering from losses, for example, pharmaceutical markers and telecommunication. Telecommunication has provided companies with a way to keep operating and stay safer than clustering everyone in offices. PCCW reported that Internet usage of Netvigator broadband services was up 0%. In China, many companies requested urgent Internet services, as they wanted to keep the business relationship with their overseas partners. Although the increase in sales was temporary, it induced companies, especially those in China to recognize the importance of information technology in modern business world. Besides, pharmaceutical industry would benefit from the crisis. The China government has given some multinational pharmaceutical makers faster permission for trials and cleared the way for anti-Sars drugs to reach the market. Even without Sars, sales of foreign medical equipment were on the rise as lower tariffs and higher incomes of Chinese meant more people could afford expensive health expenses. Therefore, the Sars crisis further paved the way for foreign pharmaceutical firms to invest in China.

In the walk of cancellation of travel advisories issued by WTO, those tourism related industries have been recovered quickly in the past few months. The “We Love Hong Kong” campaign was widely supported by different sectors aiming at stimulating the Hong Kong’s economy. The speedy recovery could be attributed to the cohesion of Hong Kong and China. Officials devised strategies for a return to stable economic growth and more generally, life without Sars. Crowds are returning to shopping malls, theatres and restaurants and there is a growing feeling that the worst of Sars may be past. Fewer people are wearing masks on the crowded street although more and more doctors and professionals have warned that Sars may return with a vengeance this commencing winter. Does it mean that Hong Kong people have already forgotten the lessons learned from the Sars crisis? Anyway, both China and Hong Kong should be alert of the possible risks in the future as the consequences of Sars are unexpected sometime. In order to survive in this competitive business world, one should grab the opportunities and resist the threats brought by Sars and always keep in mind the lessons learned. Therefore, both of the places would not be hit no matter what challenges appear in the future and bright future is foreseeable.

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