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SARS
threatening to cripple Hong Kong
By Alan Fung
Government sees short-term
impact
While most see darkness,
some see light
'Now I have time to
read the classified ads'
HONG KONG - While other parts of the world are debating the economic impact of
the warfare in Iraq, Hong Kong, a peaceful city
that
hasn't seen combat since World War II, is caught in its own battle, reminiscent
of a bio-terrorism attack. It could not have occurred at a worse time.
It comes at a time of economic downturn and high unemployment. When a health
crisis meets economic downturn, the effect can be catastrophic. Some cynics
have begun to refer to the new disease, severe acute respiratory syndrome
or SARS, as "special administrative region syndrome".
Last month Antony Leung, the financial secretary of the Hong Kong special
administrative region, announcing the 2003-04 budget, said he expected that the
average economic growth of Hong Kong can remain on the level of 3 percent each
year until 2006. That target would now seem difficult to attain if the current
situation continues.
The positive trend Hong Kong was enjoying at the beginning of the year -
unemployment was falling, retail business improving, exports soaring and
deflation abating - has been destroyed. While the government was confronted by
a record deficit, the economy did grow at a better-than-expected 5 percent in
the final quarter last year. The risk is that two pillars of Hong Kong's
economy - exports and tourism - could crumble if the epidemic is not quickly
contained.
On Wednesday the Hong Kong government received notification of a decree by the
Swiss government that there will be no employment or engagement of people who
had visited Hong Kong in the Basel Fair in Switzerland with the reason of
preventing SARS infection. Thousands of Hong Kong horologists (makers of
timepieces) and merchants were affected by the sudden decree and some of them
were requested by Swiss immigration authorities to return to Hong Kong
immediately or wait in the Basel airport.
"We are disappointed and we are concerned about this decree because there has
been no previous notification nor there has been previous consultation
regarding this decree," said Henry Tang, Hong Kong secretary of commerce,
industry and technology. "Our concern is that we wish to minimize the effect of
this decree has on those some 300 Hong Kong participants in the Basel Fair,"
Tang said. Hong Kong is the second-biggest participant in the event.
"What I know is, most of the horologists have prepared a lot for this event.
They are now losing the money they spent on the preparation and they lost the
opportunity to generate new business. This suffering is uncountable and we are
now planning to claim the compensation from the Swiss government in the sum of
HK$50 million" (US$6.4 million), said a Hong Kong horologist.
The Swiss decree marked the beginning of isolation of cities such as Hong Kong;
similar decrees by other governments are expected. Meanwhile, it is too early
to gauge the exact economic loss caused by SARS, but it is likely the impact
will be widespread.
Tourism is the first Hong Kong industry hit by the SARS crisis and is suffering
the most. Because of the widespread impact, various Hong Kong tourism
associations this week have held urgent meetings with the government to seek a
speedy solution to the situation. No official estimate of the effect on the
industry has been released yet, but representatives of the industry estimate
that inbound tours have decreased within the range of 80-90 percent
respectively.
Since the World Health Organization (WHO) issued a warning against traveling to
Hong Kong and Guangdong on Wednesday, the local tourism industry's prospects
look dismal.
Sunny Wong, director of RAMA Tour, a Hong Kong travel agency that specializes
in tours from Hong Kong to Thailand, said that while his business is not as
hard-hit by SARS as inbound tours to Hong Kong so far, he is very worried about
the long-term impact of the crisis.
"Few bookings for the Easter holiday tours to Thailand have been canceled so
far. Our clients know that although there are some alleged cases of passengers
being infected by SARS during flights, if you take enough precautions, the
chance of infections is not that high. Some even want to get out of Hong Kong
as soon as possible because of the SARS crisis," Wong said.
However, Wong warned that if the crisis prolongs, there will be a very serious
impact on the Hong Kong tourism industry as a whole. "This is even worse than
the 1997-98 financial crisis because it is not just an economic crisis but also
a psychological crisis. In 1997, people who were not hit by the financial
crisis could still travel, but now rich people and poor people alike are so
scared that they stay at home," he said.
Wong is also worried about the negative image on the whole Southeast Asian
tourism industry in the wake of the SARS outbreak. "Right now, we know that
Hong Kong and Singapore are affected by SARS, but people may develop a mistaken
impression that the whole region has been affected," he said.
Wong predicts that if the crisis continues after the Easter holiday, the Hong
Kong tourism industry may face a 90 percent tour-cancellation rate (both
inbound and outbound). Also, while inbound tourism has practically ground to a
halt, hotel occupancy has fallen by as much as 20 percent amid the
atypical-pneumonia outbreak. Travel-industry operators fear that the week-long
Labor Day holiday on the mainland from May 1, which brought 200,000 visitors
from the mainland last year, will be heavily hit.
As tourism is so important to the local economy (it accounted for 6 percent of
Hong Kong's gross domestic product last year, according to an analyst with Dao
Heng Bank), the situation has led to cuts in estimates for the territory's
economic growth this year. Citibank predicts that the loss in tourism revenue
will lower GDP) by HK$2.6 billion, or by 0.2 percent, assuming the outbreak
lasts for two months.
If a grimmer scenario in which the epidemic lasts for the rest of the year
plays out, the loss in tourism revenue could cut Hong Kong's GDP by HK$11.5
billion, or 0.9 percent. This is a great blow to the tourism industry - and to
the Hong Kong economy as a whole.
"The whole inbound tour industry is in a complete paralysis," said Ricky Tse,
chairman of the Hong Kong Inbound Travel Association. According to his
estimate, inbound tours to Hong Kong have dropped 90 percent. Tse noted that
local tourism had already been hit as the US attack on Iraq was looming in
February. "Tours from Europe and the US were decreasing before the SARS
outbreak. Basically our major revenue source was the mainland China tours, but
now even the number of inbound tours from mainland China is plummeting. Those
who are still in Hong Kong made their bookings before the crisis. I wonder how
many mainland Chinese would come to Hong Kong after these tours are gone," he
said.
Southeast Asian tours used to be another major revenue source. Tse has just
returned from Thailand and the picture he paints for Southeast Asian travel to
Hong Kong is also a grim one. As a case in point, Tse said the Thais have a
long holiday in April (Songkran, the New Year Water Festival), during which
there are typically 50-60 tour groups from Thailand to Hong Kong, but this time
all but two have canceled their tours. Whether these two groups will come
eventually is still an open question, especially after the WHO's recent travel
warning.
"I have a feeling that some tourism agencies will fold up in the two to four
weeks," Tse warned.
The same pessimistic view is shared by Simon Shi, chairman of the Hong Kong
Small and Medium Enterprises Association: "I would use 'critical' to describe
the present situation. It may well be the greatest crisis we have seen in the
history of Hong Kong. We have never seen so many issues exploded at the same
time: unemployment, economic crisis, leadership crisis, health crisis," Shi
said.
With the manufacturing industry moving to mainland China and the real-estate
industry still feeble in the wake of the 1997-98 financial crisis, the tourism
and service sectors are crucial in supporting the Hong Kong economy. These two
sectors are where SARS has hit the hardest.
"We should have foreseen this a long time ago. Hong Kong is a city with very
high population density and many buildings have centralized air-conditioning
systems. Together they create an environmental time-bomb," Shi said.
Members of his association have informed Shi that other industries have also
fallen victim to the crisis, including Chinese restaurants. "My estimate is
that revenue of the local Chinese restaurants has dropped 70-80 percent. Some
have even difficulties in paying their staff," Shi said.
Shi predicted that about 100 Chinese restaurants might have to fold up this
month because of the SARS outbreak. Some owners of the restaurants have
required permanent staffers to switch to part time and halve their working days
in order to cut costs.
The impact of the SARS crisis on the Hong Kong economy is wide and deep. Not
even imports and exports have been spared. Shi pointed out that some foreign
companies are concerned that exported goods are contaminated by the SARS virus
and required them to be delivered in Shenzhen instead of Hong Kong.
On the other hand, business negotiation promotion tours, and trade exhibitions,
whether organized by private companies or the Hong Kong Trade Development
Council, have to be canceled or delayed. Shi said April used to be the high
season for foreign importers making their orders. If they refuse to come to
Hong Kong, the number of orders will fall tremendously. The effect of the fall
will be seen in the export figures of the second half of 2003. Shi estimated
that Hong Kong exports will suffer a drop of 15 percent this year.
The airline industry has also felt the effects of this disaster. Cathay
Pacific, Hong Kong's largest carrier, has joined the growing list of
international carriers in Asia downsizing to deal with the double blow from the
war in Iraq and the global spread of atypical pneumonia. The airline announced
on Monday that it would reduce services to eight destinations within Asia from
the middle of this month until at least the end of May. The services represent
a 4 percent reduction in Cathay's systemwide passenger capacity. By comparison,
in the months following the September 11, 2001, terror attacks in the United
States, Cathay cut about 8 percent of its capacity.
"These are temporary measures made in response to softening demand. We will
continue to monitor the market and make adjustments as necessary." said
Augustus Tang, Cathay's director of corporate planning. Cathay's Hong
Kong-Taipei operations will be most affected, with 14 flights per week to be
cut. Other affected routes include seven weekly flights to Tokyo, six to
Singapore, one to Denpasar, Bali, two to Jakarta, seven each to Manila and
Kuala Lumpur and three to Bangkok.
Another Hong Kong carrier, Dragonair, has also cut 11 services in the past
month. A spokeswoman said it was considering further reductions in capacity.
Shares of tourism-related stocks, including airlines and hotels, have been hit
by the atypical-pneumonia scare: Cathay Pacific fell 15.4 percent from HK$11.70
on March 21 to close at HK$9.90 this Wednesday as passengers canceled flights
in and out of Hong Kong while the Hang Seng Index lost 5.2 percent from
9,179.19 to 8,706.19 within the same period.
According to the stock indices, the impact of the outbreak has proved more
serious in Hong Kong than in Singapore. The Straits Time Index slumped only
1.98 percent from 1,326.15 to 1,299.77 within the same period.
"Singapore's stock market has only suffered to a limited extent from war in the
Middle East and SARS. I think this is because their government did the right
thing at the right time to avoid further harm," said Kenny Tang, associated
director of Tung Tai Securities.
"At the moment, the market is concerned about both the protracted warfare in
Iraq and SARS in Hong Kong, however, the SARS affair seems far more worrisome
as it leads the market to become over-emotional; furthermore, the overwhelming
pressure from rumors about the outbreak is considerably high," Tang stressed.
Another traditional economic indicator in Hong Kong, property transactions,
surged about 25 percent last month on improved residential sales, but
real-estate agents say hopes of a further pick-up have been dashed by the
pneumonia scare. Centaline Property Agency estimated there were 5,791
transactions registered with the Land Registry in March, up 25.29 percent from
4,622 in February.
Senior research manager Wong Leung-sing said the stronger sales after the Lunar
New Year had fueled hopes of a rebound. But those hopes have since been
shattered by the SARS outbreak, which has dampened home-buying sentiment and
fanned fears of a contraction in the coming month.
Midland Realty, which predicted in December that sales volume this year would
rise 25 percent, changed its figure to zero growth. It also cut its price
forecast from zero growth to a 5 percent drop. Centaline Property Agency
director Terence Tong was cautious about the potentially devastating effect of
the pneumonia outbreak, but said it was too early to predict how the property
market would be affected.
"If the outbreak doesn't get too out-of-control, my estimate is prices for
luxury units will fall another 2-3 percent," he said.
There is no doubt that both Hong Kong's economy and international image have
been and will be deeply affected by this crisis. However, it is very difficult
to tell how severe the crisis is at the present stage. Most analysts and
economists agree it depends on how quickly the government contains the
outbreak. The number of new cases in the next two weeks will serve as a crucial
indicator.
A drop from 75 new cases on Tuesday to 23 new cases on Wednesday may indicate
that the spread of SARS is under control after the quarantine of the Block E
residents of Amoy Gardens, a residential area that accounted for about a
quarter of the total 700-odd cases.
"I believe the government has a good grasp of the problem," Hong Kong Chief
Executive Tung Chee-hwa told a press briefing on Wednesday.
With the isolation order and the number of new infections seemingly decreasing,
Hong Kong residents are hoping that the government can make a breakthrough in
understanding the virus. China, Hong Kong and the WHO must maintain cooperation
both politically and medically.
Judging from the latest figures, it seems there is a chance that the outbreak
may be able to be contained by mid-April. However, many questions regarding the
virus remain unanswered: how was SARS transmitted in Amoy Gardens? Could the
virus be airborne? As long as answers to these questions are missing, Hong
Kong's economy will continue to suffer.
(©2003 Asia Times Online Co, Ltd. All rights reserved. Please contact
content@atimes.com
for information on our sales and syndication policies.)
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