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Of SARS, China and the U.S.
The disease hasn't slowed the $9B of Chinese goods that flow into the U.S. each month -- not yet.
April 28, 2003: 3:32 PM EDT
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - SARS has put a damper on the flow of people into and out of China but it hasn't stopped the flow of Chinese-made goods that are snapped up voraciously by U.S. consumers -- not yet, anyway.

Though it hasn't spread nearly as wide or killed nearly as many people as other diseases, severe acute respiratory syndrome (SARS) has scared an already shaky global community with the suddenness and mystery of its appearance. A flu-like disease of unknown origin and with no known cure, SARS has infected more than 5,000 people, killing more than 300, worldwide.

The vast majority of the infections -- about 4,500 -- have so far been limited to Hong Kong and the southern Guangdong province of China, prompting the World Health Organization (WHO) to discourage people from traveling to those regions -- grim news for two countries that many analysts have seen as rare bright spots in an otherwise stagnant global economy.

So far, however, the pain seems to be limited to the service sector of those economies and apparently has caused no disruption to the flow of goods out of China -- more than $9 billion worth of which ends up in the United States every month.

"It's had no impact on us yet; business is going on as usual," said Julane Hamon, a spokeswoman for printer maker Lexmark International Inc. (LXK: Research, Estimates), which has factories in China. "We have manufacturing facilities in all different areas of the world -- if one has a problem, we have other areas able to help out."

Personal computer maker Hewlett-Packard Co. (HPQ: Research, Estimates), which has factories in China, Singapore and Taiwan, said it also had seen no SARS-related supply disruption.

"We have teams in each region studying and monitoring the situation, and as would be wise for any company to do, we have business continuity plans in place to address any potential impact," said HP spokeswoman Monica Sarkar.

Adam Segal, author of "Digital Dragon: High Technology Enterprises in China" and a senior fellow in China studies at the Council on Foreign Relations, said a supply problem, if it comes, still is at least six weeks to two months away -- and only then if China's government fails to keep the disease under control, or if it spreads to other provinces.

"I suspect it will be like malaria -- an operational hazard of doing business in China," Segal said. "After the short-term disruptions ... the level of fear will even out, and then things will balance as people figure out how to live with it."

The softer side of SARS?

In a perverse sense, in fact, the SARS epidemic could turn out to be somewhat helpful to China's future economic growth, if the government finally learns its lesson about the value of being open and honest about the economy and other matters.

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Dr. Stephen S. Morse, director of the center for public health preparedness at Columbia University, talks about spread of SARS, China's reaction and media's role in public information.

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Segal was somewhat pessimistic, noting that the Chinese government has fudged statistics on HIV and AIDS in China, and most likely the country's economic growth as well. But other economists say the stinging embarrassment of allowing SARS to get out of control could encourage real change in the government's attitude.

"The belated political change may ultimately improve China's financial transparency, which would improve the connection between growth and profitability," Morgan Stanley's Hong Kong economist, Andy Xie, said in a recent research note.

And a recent WHO report found encouraging signs. One of its research teams in Shanghai, China's second-largest city, said reporting of cases "appeared to be open, frank and accurate" and found a "very high level of government commitment to tackle the SARS problem."

Xie has cut his target for China's economic growth, but only in the short term. Unless the disease turns out to be much harder to control, the economic damage likely will be limited to the second quarter, he said.

And certainly the news has recently turned optimistic on other fronts -- the WHO said Monday that the disease seems to have peaked in Asia, and Vietnam said it had eradicated the disease within its borders.

On the other hand, the number of cases in China continues to climb, and the New York Times reported Monday that officials in China's capital city of Beijing were still holding back information from the WHO.

Believe the hype?

Many observers have complained that public worry about SARS has been driven by unwarranted media hype. The common flu, after all, kills far more people and causes more economic disruption -- the WHO estimates that global flu epidemics kill between 250,000 and 500,000 people every year and that U.S. epidemics cost the U.S. economy between $71 billion and $167 billion a year.

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In contrast, the WHO has estimated that SARS has cost the $30 trillion global economy just $30 billion so far.

"The fears about SARS are a bit more alarming than the reality," said Anthony Chan, chief economist at Banc One Investment Advisors. "There's so much excess capacity around the world that I doubt any supply disruptions [arising from SARS] would cause a real supply-chain problem."

In fact, Chan noted, such minimal supply disruptions might help to ease concerns about how cheaply made Chinese products are keeping prices around the world depressed, hurting corporate profits.

Still, there are economists who are gravely worried about the potential long-term impact of SARS. The WHO said Monday it still is frustrated by a lack of information, has noted how easily the disease seems to spread, and warned it could be "a particularly serious threat" to global health. Unlike HIV -- the virus that causes AIDS -- and other diseases, SARS apparently can be transmitted through the air.

David Kotok, head of Cumberland Advisors Inc., a money management firm in Vineland, N.J., for example, has warned that SARS, in addition to slowing travel, could further delay U.S. business investment and hiring, burden already cash-strapped state and local governments, stretch the federal budget deficit and weigh on consumer spending.

"'SARS is over-hyped by the media' -- we get responses like that consistently," Kotok said. "We don't agree. The skeptics are wrong. There may be media hype, but SARS is big. It is a macroeconomic shock of growing proportions."  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.