SHANGHAI, May 13 (UPI) -- Anyone wondering about the impact of the deadly outbreak of severe acute respiratory syndrome on China's economy need only ask Jiang Li, a tour guide for one of the city's many travel agencies.
"Business is dismal these days," says the 24-year-old, from behind a facemask. "Nobody wants to travel. I don't blame them, with this SARS problem everyone is staying home and avoiding travel around China."
While Shanghai has so far avoided the worst of the SARS virus, with one death and five confirmed cases in a city of nearly 17 million, its impact on China's economy has become noticeable in recent weeks.
Throughout China, tourism has dwindled to a standstill as many foreign governments warn against travel to the country and as Beijing has banned visitors from traveling in tour groups to Tibet and other popular destinations.
Hotels, airlines and other tourism-related industries have withered from SARS since Beijing broke its silence last month about the deadly flu-like virus after months of denial.
But the harm to China's economic growth is mounting in other sectors. Financial markets already have been badly hurt, global investment banks have trimmed their forecasts for China and the region and foreign investors, who contribute a huge portion to China's growth, have postponed investment projects.
Fearing that Shanghai might become the next hot-zone in China's escalating SARS epidemic, scores of foreign investors and businessmen have fled the country, putting the brakes on major investment deals.
Last year, China was considered the world's primary destination for foreign investors, with a total of $52 billion in investments. But economists are warning that the SARS outbreak could easily change all that.
Experts at the Peking University Economic Research Center estimated last week that SARS might cost China some 210 billion yuan ($40.2 billion) in lost revenues -- or about 2 percent of its total economy.
Zhang Zhongliang, an economist at the official China Economic Monitoring Center in Beijing, said SARS is also having a major impact on domestic demand, long considered a driving force behind the economy.
In an editorial in state media last week, Zhang warned that the long-term effects of the epidemic could be even more damaging than the fallout of the 1997 Asian financial crisis.
"The negative impact of SARS on the Chinese and Asian economies is all too evident," Zhang said.
After more than two months of denial, Chinese Premier Wen Jiabao has been unusually candid about the extent of the SARS outbreak in recent weeks and warned that the threat to the economy is serious.
"Currently the state of SARS prevention and treatment remains severe, and the epidemic's impact on the economy is increasingly apparent," Wen was quoted in state media reports as saying last Wednesday.
Last week, China's State Cabinet announced measures to control the economic damage from SARS, ordering state-run firms not to lay off employees and offering financial aid to all affected industries.
Chinese officials worry that if the SARS outbreak continues unabated, it will hurt small and medium-sized domestic companies and drive the level of urban unemployment even higher than its current 8.5 percent.
Economists say the extent of the long-term damage to China's economy from SARS will depend on how long it takes for the virus to be contained. If the outbreak drags on for more than few months, they say, the overall impact on domestic and foreign confidence in the Chinese market could be devastating.
Despite indications the level of SARS infections in other countries is beginning to fall, the outbreak in China shows few signs of retreat any time soon, officials from the World Health Organization have said.
According to figures issued by the Health Ministry on Monday, China has more than 5,000 verified SARS cases in two-thirds of its provinces. The nationwide death toll was at 252, with 129 fatalities in the capital.
Beijing has been criticized for its handling of the outbreak, which is believed to have originated last November in China's southern Guangdong province, after it initially covered up news of infected people.
Discussions with foreign executives and investors over the past three weeks indicate their concern is less about the SARS outbreak than with the way the Chinese government has handled the public health crisis.
"We can handle the disease, but the fact is we just don't believe what the officials are telling us," said Ed Spenser, who co-manages a Sino-U.S. joint venture soft-drink distribution firm based in Shanghai, noting that his company has given temporary leave to most of its employees and their families to depart China.
Some say the lack of information about how the SARS virus is contracted has created an environment in which investors -- who either live in or frequently travel to China -- feel that their lives are now threatened.
As a result, investment deals between overseas firms and Chinese manufacturers, which typically require face-to-face negotiations, are being delayed and in some cases canceled, some foreign executives say.
China's manufacturing sector, which accounts for half of the nation's economic output and depends on foreign investment and exports, could face a slowdown if pending deals fail to materialize in the future.
"If SARS continues to spread, multinational firms might just look elsewhere in Asia," said one investor.
Even more troubling, say Chinese economists, is the evident decline in consumer spending, which China relies on for economic growth, as millions of people stay home amid rising hysteria over the SARS virus.
Earlier this month, Chinese officials were forced to cut short the May Day holiday, a big source of annual consumer spending, in an attempt to keep people from traveling and possibly spreading the SARS virus.
"If this gets worse in the countryside and people across the country stop shopping and traveling, which is already happening, there will be serious economic consequences," said Li Bo, an economics researcher at Shanghai's Fudan University. "Unless SARS is brought under control soon, this could easily happen."
