12 May - 18 May 2003

No 140


The National Bureau of Statistics released monthly GDP figures for the first time in its history in order to show the spread of SARS has had only a limited influence on the nation's economy. Usually, the bureau only reports quarterly figures. The results look better than suggested by the global SARS-panic. However, officials acknowledged that the economy is entering a fragile stage. Analysts said the damage caused by SARS only became clearer in the last 10 days of April and warned the next couple of months might see a growing economic toll on FDI, industrial output and exports. The Government is clearly trying to push growth by expanding money supply and speeding up fixed asset investment. Obviously, accuracy of the official figures is an issue, but hardly more so than at any time in the recent past.

April Results

  • GDP up 8.9%
  • Exports up 33.3%, Imports up 34.4%
  • FDI up 37.2%
  • Industrial output up 17.2%
  • Fixed asset investment up 29%
  • Fiscal revenue up 36.7%
  • Retail sales up 7.7%, CPI up 1.0%, Household savings up to CNY10 trillion

All figures compared with the same period last year (April 2002), if not indicated otherwise.

GDP is growing despite disease
China's economy expanded 8.9% (GDP) in April from a year earlier as factories and construction steamed ahead despite a sharp drop in retail sales.
China's exports jumped 33.3% in April to USD35.62 billion, only marginally slower than the 34.7% rise in March, as factories filled overseas orders made months ago, before SARS began to affect the economy. Export data in the coming two to three months will still reflect existing orders, while disruptions to new orders won't emerge until the summer. Imports expanded 34.4% to USD34.6 billion, more than 10 percentage points less than the March figure. Total trade was USD70.22 billion, up 33.8%, and the first time surpassing USD70 billion in monthly foreign trade. The strong monthly showing was also enough to put China's cumulative trade balance back in positive territory for the first time this year. For the January-April period, China posted a trade surplus of USD100 million. Exports gained 33.5% on-year in the four month period to USD122.03 billion, while imports were up 46.8% to USD121.93 billion.
Actual FDI rose a year-on-year 37.2% to USD4.74 billion in April compared with a 57% rise in the first three months. Contracted FDI rose 27.2% on year to USD7.55 billion.
Fixed-asset investment, which reflects spending on projects such as real estate, roads and power grids that mainly are sponsored by government-backed institutions, rose 29%, not far off the 30.7% increase in March.
Tax revenue stood at CNY707.7 billion during the January to April period, up 25.8% compared with the same period last year. The revenue situation was mainly because of the country's sound economic development and may therefore deteriorate later in the year. Also, the Government agreed to reduce or waive taxes on SARS-hit sectors, another reason why 2003 tax revenue growth will lag behind he originally forecast 13%.
Industrial output in April surged 14.9% over the same month of last year, 2.3 percentage points lower than in the first quarter of the year, and slower than the 17% increase in March, but in line with the observation that while SARS has caused many Chinese to curb travel plans, it hasn't had a major impact on the country's manufacturing facilities. The auto sector slowed sharply in April, down 19% from the 54% growth rate seen in the first quarter, with much of the reduction seen in trucks, down 12.6%. Sedan output remained strong, rising 83.6% to 167'000 units.
Broad money supply (M2) last month grew by 19.2% on a year-on-year basis, as compared to 18.5% registered at the end of March. However, narrow money (M1) grew by 18.1%, as compared to 20.1% in March. The slow-down was mainly because the growth in enterprises' demand deposits had slowed. Growth rates of both M1 and M2 were well above the central bank's initial targets of 16% for all of 2003. A recent report from the People's Bank of China said M2 is now expected to grow 18% on year in 2003. The report also revised upward its forecast for total lending by financial institutions to CNY2 trillion in 2003 from its previous estimate of CNY1.8 trillion. At the end of April, private individuals' outstanding deposits totaled CNY10 trillion, up 18.4% annually, compared to 19.1% at the end of last month. Total loans rose 20% year on year to CNY15.05 trillion at the end of April, the highest growth rate since 1997.
CPI rose 1.0% in April, the highest percentage in the last two years. Economists consider that one of the triggers to cause prices rise was the spread of the SARS. After the central government had admitted covering up the number of the SARS cases, panic spread among consumers that started stapling food products, masks and medicines. Retail sales in April increased 7.7% year on year to CNY340.7 billion, its slowest pace in 44 months, as urban consumers stayed home to avoid SARS, and down from CNY349.5 billion in March. (Source: PRC Government and media)


Economic Impact: Summary of latest developments

  • Companies and individuals are learning to live with the virus. General panic seems to cool off in China, albeit not in the non-affected part of the world. Companies' preventive measures and contingency plans are safely in place.
  • While everybody is holding their breath, industrial output and exports have yet to see significant setbacks (see also above for April economic data and outlook).
  • The services sector, in particular the hospitality and travel industry, still suffer the most under the SARS-crisis. Millions of local SMEs are at risk or have already gone out of business. While international hotel chains will endure, stand-alone 4 and 5-star hotels are running out of cash and time. As many as 3 million jobs may be lost in the sector.
  • Ongoing restrictions of movement within China and cancellations of international flight connections are an increasing hazard to business operations. Transport and shipping around provinces are harder, more time-consuming and sometimes more costly.
  • Of the 164 countries with which China has diplomatic relations, 110 have placed at least some restrictions on travel. Several countries are refusing to accept visitors from China, while others are requiring stints in quarantine of up to two weeks. Dozens of countries have officially stated they will not issue visas during the outbreak.
  • The measures against SARS taken by - sometimes over-enthusiastic - cities, towns and Communist Party committees are likely to impede business in a way that the virus has not.
  • Economists participating in a seminar in Beijing - organized by Boao Forum and Asian Development Bank - agreed that China would remain one of the fastest growing economies in the world this year, once SARS has been brought under control. But they accepted that the economy might undergo setbacks in the second and third quarters.
  • Retail sales will slow down, urban unemployment will go up, contractual FDI will decrease, deflation may be back, deficit will increase.

Experience of Swiss business community in Beijing
On 15 May, the Ambassador of Switzerland met with representatives of Swiss companies in Beijing for a second round of information exchange. So far, none of the companies has reported an actual or suspected case of SARS among their employees. Compared to the last meeting, there was an obvious change of focus, as managers now seem more relaxed about the immediate health hazards in China, but increasingly concerned about the unabated panic in Europe. The latter is caused - in their opinion - by sensational media reports and likely to be more harmful to their business than the virus itself.

Companies report that general panic among employees has decreased and that preventive measures have become part of daily life; contingency plans in case of SARS among the workforce are in place. Some companies confirmed reports on excessive action taken by local authorities - one company being invited to introduce 7-day working week in order to prevent employees to leave the premises. On the other hand, there were several examples quoted for lack of efficiency or accuracy in specific preventive measures taken by Chinese authorities. In general, everybody welcomes and complies with relevant instructions.

Industrial companies have suffered little impact on their business, so far. However, order intake is declining fast, as sales people are unable to meet with clients. In particular the large SOEs and Chinese banks refuse access to any kind of outsiders, even service staff. Meanwhile, large projects in the power sector are going on undisturbed, because of impending power shortages during the summer months. Companies in need of foreign experts for their projects face difficulties because said experts refuse to travel to China, while the clients insist on agreed services and deadlines. SARS does not defer execution of contracts, as it does not qualify as "force majeure".
Airlines and hotels are by far the worst hit among Swiss and Swiss managed companies in China. Average occupancy rate at Beijing's luxury hotels was 5.3% for the first two weeks of May. Up to 15 hotels are expected to close by the end of the month. SARS creates a crisis much worse than terrorist attacks, natural disasters a.o. emergencies known so far.
Companies follow different policies with regard to minimal pay for idle staff. Some continue paying regular salaries, some offer the legal minimum pay (between CNY465 and CNY760 per month according to industry), some find intermediate solutions.
Everybody experiences cancelled meetings, aborted business trips, interrupted client-relationships, risk of quarantine upon visit at headquarters, introduction of video-conferencing, increased phone-bills etc.

Government to waive or reduce taxes on SARS-hit sectors
Taxes and administrative fees levied by the Chinese Government on some industries affected by the outbreak of SARS will be waived or reduced. It is the first time in Chinese history that such a measure has been taken to protect suffering industries. The reduction is effective from May 1 to September 30 and involves more than a dozen categories of taxes and fees levied by both the central and local governments. The beneficiaries include restaurants, hotels, trading markets, tourism, entertainment, civil aviation, road and water transportation, taxi and bus industries. (China Daily, 12 May) See also below for further supportive measures.

Upon request by the Swiss Embassy, the Ministry of Commerce, Department of European Affairs, confirmed that the above mentioned measures will also apply to foreign-funded companies established in China. Details of this new policy have yet to be decided. Furthermore, there might be material and procedural differences between or even within provinces and cities. The Embassy would like to advise Swiss-funded companies established in China and doing business in one of the above-mentioned fields to:

  • Contact their local tax authorities in order to learn about possible preferential taxes and fees due to the negative impact of SARS on their business;
  • observe whether their local competitors receive such preferential treatment;
  • notify the Swiss Embassy in Beijing or the Consulate General in Shanghai in case they perceive any discrimination against foreign funded companies in the implementation of this new policy.

(Embassy of Switzerland, 15 May)

Chinese treasury reimburses aviation, tourism companies
The Chinese government offered reimbursement on interest of short-term loans borrowed by large-scale national civil aviation and tourism companies to finance daily operations. The term of the interest reimbursement is five months, from May 1 to Sept. 30, and the loans must be used to finance the companies' normal operations, including payment of wages and necessary logistics supply. The Ministry of Finance also allowed its local fiscal arms to format their own assistance policies toward local civil aviation and tourist companies. (People's Daily, 14 May)

8 million have fled cities, fuelling fear of rural outbreak
An estimated 8 million migrant workers have fled China's major cities in recent weeks and returned home, despite efforts to discourage them from doing so. According to Agriculture Vice-Minister Liu Jian the virus had caused the volume of rural-urban migration to double in recent weeks. A survey conducted by the Agriculture Ministry in 170 villages shows about one in 10 migrant workers had recently returned home. (SCMP, 16 May) Compare this with China Daily of 17 May: Beijing-based migrant workers are showing their confidence in the city's SARS-prevention measures by opting to stay, rather than returning to their home provinces.

SARS curbs threaten lucrative labor exports
SARS and the controls imposed on Chinese citizens going abroad threatens the lucrative business of labor exports, which last year earned the country more than USD3 billion and employed nearly half a million people, about 1.25% of the national workforce. (SCMP, 12 May)


Government Ministry of Commerce functions outlined
The State Council has agreed the major functions, framework and personnel arrangements of the Ministry of Commerce (MOFCOM). The ministry - a combination of the former MOFTEC, SETC and SDPC - is to set up a total of 25 departments and bureaus under it. Besides MOFTEC's original functions of managing foreign trade, international economic co-operation and foreign investment, MOFCOM will also draw up development plans on internal trade, give advice on reforming the logistics system, promote and develop urban and rural markets and promote modern logistics modes such as chain operations, delivery and electronic commerce. It will also draw up policies on breaking monopolies and regional segregation, monitor market operation and supply-and-demand conditions and take macro market control of important consumer products and circulation of important production materials. (China Daily, 16 May)

Second directive issued against building of aluminium plants
The central government issued its second directive in 13 months against building new factories to produce electrolyzed aluminium but local authorities in China are ignoring it, which will lead to overcapacity, falling prices and wasted investment. (SCMP, 14 May)

Commission focuses on reducing NPL ratios, accelerating reform
The newly-unveiled China Banking Regulatory Commission (CBRC) said supervisory priorities for the commission in the near term are to reduce the NPL ratios at commercial banks, quicken reform at State-owned commercial banks and accelerate the reform of rural credit co-operatives. CBRC officials said although the commission had already become operational, its internal structure is still being built. It mainly involves the transfer of relevant responsibilities from the People's Bank of China to the CBRC and the restructuring of the Central Finance Working Committee, a Party organization responsible for overseeing the country's financial system. (China Daily, 12 May)

Local governments gear up for privatization
China is about to embark on its second wave of privatization. While talk has already begun of mergers and acquisitions, it is likely that this round of privatization deals, again, will be primarily of interest to domestic investors. Local government bodies own the vast majority of China's 174'000 state firms, whose combined assets are valued at around USD500 billion. Local authorities now have full shareholder's rights - including the right to sell. Before, there has been a sort of stealth privatization, done largely on the initiative of company managers and local officials, and without explicit goals, standards, or debate on its effects. China's second wave of privatization looks to be shaping up differently, with the focus on sales to investors outside the companies. (Dow Jones, 11 May) Still, "asset stripping" will again be awful. But then, somebody has to buy all the beautiful BMWs.


Financial risk managers see SARS cutting profits by 5%
A majority of risk managers at top financial institutions in SARS-affected areas expect the outbreak to diminish their companywide earnings by at least 5%. Yet more than a third of the risk managers said that they were poorly prepared for the disruption caused by a highly contagious disease. (WWSJ, 15 May)

World Bank buys stake in Minsheng
China Minsheng Bank shareholder Orient Group is selling part of its 7.51% stake to IFC, the World Bank's private finance arm. This will give IFC a 1.22% stake in Minsheng, China's only private bank. (SCMP, 14 May)

Fund launches on hold until SARS threat eases
The outbreak of the deadly SARS virus has forced four mainland asset managers to put on hold their plans to launch new funds in China. SARS-induced travel restrictions and Beijing's ban on gatherings would frustrate investors and fund managers trying to promote their portfolios, analysts said. (SCMP, 13 May)


China airlines hit hard by outbreak
Mainland airlines are facing unprecedented losses with passenger loads down more than 80% this month. Cargo traffic has so far not been affected, with freight levels similar to those of last year, in part because of the additional duty of transporting medicine and equipment used to treat SARS patients. Air China may delay its overseas listing plan because the SARS outbreak has scared away passengers and grounded many flights. (SCMP, 17 May)

SARS disease squeezes travel industry
According to an economic impact study by the World Travel & Tourism Council, SARS will sap China's tourism industry of USD7.6 billion this year, and cost as many as 2.8 million jobs in the sector. If jobs related to tourism, such as retail, construction and service jobs, are included, the job-loss figure could rise to 6.8 million. The total estimated loss to the country's travel economy this year, including lost capital investment, foregone travel by domestic residents and a drop in spending from inbound visitors, could total USD20.4 billion. Economists note that the influence of tourism and travel is now completely intertwined with the rest of China's economy. "Tourism accounts for about 20% of retail sales. The bottled-water business is driven by tourism. The taxi business is driven by tourism. It's not just hotels and airlines. (WSJ, 16 May)

Ikea plans 10 more stores on mainland
Ikea plans to spend USD600 million to open 10 stores in China by 2010, a sixfold increase in its mainland investments. The mainland accounts for up to 7% of Ikea's sales worldwide. (SCMP, 16 May)


Telecoms carriers gain from outbreak
The mainland's telecommunications sector looks like being one of the few industries to gain from SARS. According to a study by the Ministry of Information Industry, the industry will see revenue rise by between CNY4 billion and CNY9.5 billion, depending on how quickly SARS can be contained. Although investment in telecommunications equipment and infrastructure will slow down, traffic is increasing as people cut down on travel and meetings. (SCMP, 17 May)


China aims to expand energy presence
China's plans to expand its energy presence in the region took a hit when international oil firms seemed likely to buy a 16.6% share in a large Kazakh oil project from under the noses of two of China's oil majors, China National Offshore Oil Corp. (CNOOC) and Sinopec. (FEER, 22 May)

China approves new power plants
The Chinese government approved the construction of 13 large-scale power plants with a total investment of CNY51.2 billion. The power plants, which will begin construction in the next two to three years, will have a total electricity generating capacity of 11.88 million kilowatts. Since the beginning of the year, the Chinese government has approved the construction of more than 30 large-scale power plants, and work on 17 of them have been started. (China Daily, 15 May)

Oil consumption to shrink
The International Energy Agency said oil demand in China would shrink by 5.5% in the second quarter compared with last year due to the SARS epidemic. (Dow Jones, 14 May)


Disease blocks retail sales
SARS dealt a blow to the growth of Beijing's retail sales in April, which stood at CNY14.5 billion, an increase of 14.6% compared with the same time last year, but 10 percentage points lower than the first three months. The retail sales volume of restaurants in Beijing was CNY830 million, down 4% from a year ago. (China Daily, 13 May)

Beijing 2008

China insists 2008 Olympics are on track despite SARS
Responding to concerns that SARS may be casting a shadow over planning for the 2008 Olympics, Chinese officials insisted Beijing is capable of simultaneously beating back the epidemic and preparing to host the premier showcase of world sport. Construction of four Olympic venues, including the national stadium, is expected to start on time at the end of the year. But Beijing Olympic officials also announced that the marketing and logo launch for the 2008 Olympic Games, set for May 25, has been postponed indefinitely. Delays are hitting other areas as well. Some tenders for construction projects have been put off. (WSJ, 15 May)


SARS forces group to renovate' 14 hotels in Shanghai
China's biggest hotel management chain, Jinjiang International, whose operations include the famous Peace and New Jinjiang hotels, has closed 14 of its 17 hotels in Shanghai for three months after occupancy levels fell to about 10%. China International Travel Service's Shanghai branch - China's largest - announced the cancellation of all its domestic and foreign tours because of SARS. Analysts said yesterday that China could lose as much as USD44 billion in tourism income this year because of SARS. (SCMP, 15 May)

Pearl River

Guangdong province reports strong economic growth despite SARS
Guangdong saw strong growth in the first four months with its GDP reaching CNY362.7 billion, up 12.8% year-on-year. The province's industrial added value was CNY153.5 billion up 19.2%, suggesting that manufacturing industries have not been severely affected by SARS. Governor Huang Huahua remains optimistic about reaching the goal of 9% GDP growth rate this year as redoubled efforts are taken to minimize the economic impact of SARS. (People's Daily, 17 May)


Yao threatens to sue Coca-Cola
China's most famous basketball star, Yao Ming, threatened to sue Coca-Cola for using his face on its bottles after he signed a contract with its archrival Pepsi. The confusion has arisen because Coca-Cola signed a three-year deal in March with a state-owned firm in Beijing, China Sports Management, which is the commercial representative of the national men's basketball team. (SCMP, 17 May) The boy has learned well in the U.S.

China to launch 5'300 road projects in rural areas this year
China plans to launch a total of 5'300 road projects in its vast rural areas this year, covering 78'000 kilometers. The total investment for these projects will hit CNY75 billion. A total of 176'000 kilometers of road are expected to be built in the following three years. Currently, 184 towns and 54'000 villages in China have no access to roads, most of which are scattered in western China. (Peoples Daily, 16 May)

TV-makers accused of dumping
Mainland television-makers are trying to prevent a second anti-dumping action following charges of unfair trading leveled against Chinese and Malaysian manufacturers by U.S. labor unions and an electronics firm. Last year, China's big seven TV-makers won an anti-dumping case against the E.U., ending a dispute that had been dragging on for almost 15 years. The value of China's TV set exports surged 52.1% to USD2.14 billion last year. (SCMP, 13 May)

Provincial chiefs lured to the private sector
A growing number of senior mainland provincial government officials are resigning to pursue lucrative jobs in the private sector, sparking concern over potential conflicts of interest. (SCMP, 13 May)

Weekly Market update  16 May 2003  30 April 2003
Shanghai A 1627.76 1579.48
Shanghai B 116.49 117.75
Shenzhen A 449.91 440.73
Shenzhen B 216.53 211.91
Hong Kong Red Chip  938.90 898.78
Hong Kong H 2221.08 2199.60
Source: South China Morning Post

China Business Briefing is a random selection of business related news gathered from various media and news services covering China, edited by the Embassy of Switzerland in Beijing and distributed among Swiss Government Offices and other interested parties. The Embassy does not accept responsibility for accuracy of quotes or truthfulness of content. Upon request and depending on the resources available, the Embassy will provide further information on the subjects mentioned in the China Business Briefing.

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