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SARS: Taiwan thinks the unthinkable
By Michael Taylor

The severe acute respiratory syndrome (SARS) outbreak in Taiwan has continued to worsen in recent days. On Saturday, a record 34 people were added to the list of probable SARS cases, followed by another record-setter on Sunday - 36 new probable cases and five more deaths. The new totals stand at 344 probable cases and 40 deaths from the virus since it was first identified in Taiwan in mid-March. That might not sound like an extremely virulent epidemic, given that there are more than 22 million people in Taiwan and the population density is second only to Bangladesh. But the public's sense of fear, fueled by local television media's apparent inability to report on anything else, has reached new heights.

Meanwhile, the inability of the various levels of government to coordinate anti-SARS efforts gives little room for optimism that it will contain the disease quickly. Even some business leaders are now calling for a nationwide shutdown, and gauging the impact of SARS on the nation's economy has become more difficult than ever. This has not stopped various government agencies, multilateral institutions and private think tanks and research houses from doing so, yet with the following fairly obvious caveat: the extent to which SARS dents Taiwan's economic growth depends entirely on how bad things get, and how long they remain that way.

SARS has highlighted many of Taiwan's trends and characteristics, and perhaps chief among these from an economic standpoint is the nation's interdependence with China, which is more than just the birthplace of the virus that has now spread across Taiwan. Attempting to assess accurately the impact of SARS on Taiwan's economy would require knowledge of how bad the outbreak has become in China, particularly the Shanghai/Yangtze River Delta area, and Fujian and Guangzhou provinces, which in recent years have become manufacturing centers - and increasingly, development centers as well - for Taiwanese companies.

Unfortunately, accurate information on China is not forthcoming. Taiwanese sources in Shanghai report rumors ranging from "the situation is completely under control" to "it's 30 times worse than the government admits". Yet these sources admit that their intelligence is based on rumor, and that they are mainly in the dark about the true extent of the outbreak in China.

So far, despite the alarming rumors, sources in Taiwan's key technology sector report no interruptions in their chains across the Taiwan Strait. That said, many do note that downstream customers in the United States and Europe have requested that they stock up on inventories to prepare for possible SARS-related interruptions. And some have even been asked to move their manufacturing bases to Southeast Asia, which seems to have contained outbreaks of SARS, or to Latin America. Indeed, companies that have always maintained geographically diversified production sites for reasons of market access (such as in Mexico, which offers both NAFTA access to the US market as well as somewhat cheap labor) report increased orders. Such companies are seen as benefiting from the SARS outbreak.

It seems unlikely, but SARS has a slight chance of accomplishing what a decade of former president Lee Teng-hui's "Go slow, be patient" and "Go South" policies could not - forcing Taiwanese industrialists to set up their manufacturing operations in cheap labor markets other than China. The idea behind these policies, which are supported by the current administration but not by most industry leaders, is to steer Taiwan away from economic interdependence with China and thereby maintain its political separateness and effective sovereignty.

Yet economic interdependence is a fact, and if China sinks, Taiwan is likely to have a very difficult time detaching itself and regaining the surface. While moving labor-intensive sweatshops to other impoverished yet SARS-free nations might be tenable, many Taiwanese companies operating in China are in capital-intensive sectors, making further migration unfeasible - even in the face of reduced export orders from customers who are increasingly wary of suppliers' ability to fulfill their needs amid the SARS outbreak.

This drop-off in downstream customers' confidence is precisely what is now happening, according to Wang Yung-ching, chairman of the massive Formosa group, the core businesses of which revolve around basic materials such as plastics and rubber - and which is heavily invested in hard-hit southern China. Just a few weeks into the outbreak in Taiwan, Wang said that he expects "a severe blow" to his companies in terms of weakened orders from overseas clients who are fearful that the spread of the disease might impact Formosa's ability to fulfill the orders in a business environment that requires minimal inventory to remain competitive.

Furthermore, unlike the majority of foreign-invested firms operating in China, Taiwanese are not only focused on manufacturing for export, but also on internal Chinese demand. Exactly how bad Chinese consumption has or will be hit by SARS is a guessing game, as Beijing's official figures are widely disbelieved. Certainly, weakness is likely in the areas known to be hardest hit, most famously Beijing, but also Guangdong and Nanjing. Consumer demand in the Shanghai region, which Beijing claims has avoided SARS almost entirely, is also in question. But given that reported sales in China during the first quarter were generally in line with corporate expectations, it seems that the real impact of the outbreak has yet to be felt.

In Taiwan itself, the major impact of SARS has, not surprisingly, centered on the hospitality, travel and tourism industries. In large part, this is due to a dearth of business travel after foreign companies have postponed or canceled plans for employee travel to Taiwan and other SARS-affected nations as standard corporate policy. Meanwhile, the normal flood of tourists from Japan, by far Taiwan's main source of incoming tourism, failed to materialize during the recent weeklong series of Japanese holidays. Despite cut-rate deals on luxury hotels, occupancy rates in Taipei and elsewhere are at or near rock-bottom. Meanwhile, domestic tourism, which accounts for the bulk of the industry, has melted away as Taiwanese avoid public transit and air travel.

Taipei hoteliers could hardly have been cheered by the recent indefinite postponement of Computex, Taiwan's most important industry convention and the third largest IT show in the world after CeBIT in Hannover and Comdex in Las Vegas. Originally scheduled for early June as it is every year, the show's organizers postponed it, citing the unwillingness of registered exhibitors to attend. Computex has been put on indefinite hold, with organizers promising to hold the convention in autumn - if the SARS outbreak has been brought under control by then.

Last week, business leaders began calling for what had heretofore been unthinkable - a nationwide quarantine of 10 days. Backed by the ROC (Republic of China - Taiwan's official name) Chamber of Commerce, one of the nation's most powerful business organizations, the quarantine would mandate the closure of all non-essential businesses and government agencies, in order to find people who have been infected with SARS and isolate them. The imposition of such a nationwide quarantine seems exceedingly unlikely, given that Taiwan authorities proved incapable of even quarantining Hoping Hospital effectively in April. Moreover, it does not enjoy extremely widespread support, and the Presidential Office on Friday canceled a scheduled discussion of the issue, thereby managing to sidestep it for now.

However, the fact that such a drastic policy is even being considered (estimated cost to the nation's IT industry: US$290 million) reflects the growing exasperation with the government's inability to rein in the disease. More ominously, it is an indicator of the potential economic risks that Taiwan faces from a long, drawn-out series of SARS outbreaks.

(Copyright 2003 Asia Times Online Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)
May 20, 2003

SARS: Taiwan's WHO bid nothing to sneeze at (May 3, '03)

Taiwan ponders suspending links with China (May 17, '03)


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