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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 content@atimes.com for
information on our sales and syndication policies.)
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