Bloomberg News

China Bird-Flu Outbreak Seen Adding Risks as Growth Slows

April 18, 2013

China Bird-Flu Outbreak Seen Adding Risks After Slow Growth

Tourists watch the sunset over the Pudong financial district of Shanghai on April 15, 2013. China Spring Tour saw a drop of 30 percent to 35 percent in the number of visitors it handled to Shanghai and nearby regions in the first 10 days of April compared with a year earlier, said Eason Yi. Photographer: Mark Ralston/AFP/Getty Images

China’s deadly bird-flu outbreak is rippling through industries from restaurants to travel, adding economic headwinds after last quarter’s unexpected slowdown.

The disease “may suppress domestic consumption in the near term,” Goldman Sachs Group Inc. said in a report this week. Ding Shuang, a Citigroup Inc. economist in Hong Kong, sees a danger of “short-term volatilities” in growth and inflation and of bigger effects if found to transmit between humans.

The outbreak, which has sickened at least 82 people and killed 17 so far, threatens to extend the longest streak of growth below 8 percent in at least 20 years in the world’s second-largest economy. The 2003 global pandemic of severe acute respiratory syndrome showed the risks associated with such incidents, with Credit Suisse Group AG estimating China’s expansion in the second quarter of that year was cut by about 2.4 percentage points after seasonal adjustments.

“Consumption is likely to stay weak in the second quarter because of the outbreak,” said Li Wei, a Shanghai-based economist at Standard Chartered Plc. “We don’t know how the bird flu is going to evolve.”

The virus is affecting restaurant sales as people eat more meals at home and having an impact on factory production through the food industry, Li said without giving specific estimates.

China’s economy grew 7.7 percent in the first quarter, the National Bureau of Statistics said April 15. That compared with the 8 percent median forecast of analysts and 7.9 percent expansion in the previous period. BNP Paribas SA today cut its full-year growth forecast to 7.9 percent from 8.3 percent.

Home Prices

Signs of support today for the economy include new home prices that rose last month in all except two cities, according to National Bureau of Statistics data, and a Commerce Ministry report showing foreign direct investment in China gained for a second month.

The benchmark Shanghai Composite Index (SHCOMP) was little changed as of 1:56 p.m. local time.

The State Council, or cabinet, said yesterday that it will strive to prevent risks in local-government debt and credit, a sign that authorities may tighten policies this quarter, Nomura Holdings Inc. said in a report today. The government reiterated it will promote interest-rate liberalization and yuan convertibility in the capital account, according to the statement after a meeting led by Premier Li Keqiang.

Separately yesterday, Yi Gang, deputy central bank governor, said in Washington that the yuan’s trading band will be widened “in the near future,” after the currency rallied to a 19-year high.

Chicken Vendor

Beijing vendor Xu Hongjuan said her sales of cooked whole chickens have declined to 20 per day over the past week from almost 100 two weeks ago.

“It’s not about price, not about quality, it’s about fear,” Xu said yesterday from her one-window stall about 4 kilometers (2.5 miles) northwest of the Forbidden City. “I hope everything will be back to normal as quickly as possible.”

Yum! Brands Inc. (YUM), which has more than 5,200 stores in China, said April 10 that the publicity associated with the virus has had a “significant, negative impact” on sales at the Louisville, Kentucky-based company’s KFC dining chain.

Bird-flu fears may boost prices of pork and other poultry substitutes, and broader demand for food will keep outstripping supplies, meaning food prices will “remain a driver of inflation,” Citigroup’s Ding said.

Ha Jiming, vice chairman and chief investment strategist of Goldman Sachs’s investment management division for China, said in an April 15 note that the outbreak is among economic headwinds that include the government’s frugality campaign, tighter curbs on property buying and restrictions on so-called shadow banking.

‘Negative Impact’

“Although it is difficult to assess the nature of the recent bird flu and the possibility of human-to-human contagion, there could be some negative impact on consumption,” Ha wrote.

Bank of America Corp. may reduce its second-quarter growth forecast to less than 8 percent from 8.1 percent if the bird-flu situation deteriorates further, Lu Ting, head of Greater China economics in Hong Kong, said in an April 5 report.

China Spring Tour, one of the nation’s biggest travel agencies, saw a drop of 30 percent to 35 percent in the number of visitors it handled to Shanghai and nearby regions in the first 10 days of April compared with a year earlier, said Eason Yi, an officer in the corporate marketing and planning department.

That’s more muted than during SARS, when travel “almost came to a complete standstill,” Yi said in a telephone interview yesterday.

Airline Stocks

The Bloomberg Asia Pacific Airlines Index, which includes carriers Air China Ltd. (753) and China Southern Airlines Co. (1055), had dropped 6.2 percent since March 25 through yesterday.

“People have psychological fears about the virus and many of them just want to come after things are settled down,” Yi said. “I have no idea how long it will last.”

Based on information so far, the broader economic effects of bird flu will probably be limited, according to analysts at Barclays Plc and JPMorgan Chase & Co.

“I don’t think it will be as bad as in 2003 during SARS,” Zhu Haibin, chief China economist at JPMorgan in Hong Kong, said in an interview last week. “The government is more experienced in dealing with it, so the impact will be very, very modest.”

Elsewhere in Asia, Japan reported higher-than-forecast exports for March and the trade deficit narrowed from the previous month after declines in the yen made the nation’s products more competitive in overseas markets.

Jobless Claims

In the U.S., initial jobless claims probably increased to 350,000 for the week ended April 13 from 346,000 in the previous week, according to the median estimate of 46 economists surveyed by Bloomberg News. The U.K. will release monthly retail-sales data.

Russia will report its gold and foreign-exchange reserves, with investors closely watching central banks’ holdings of the metal after prices plunged about 30 percent from a September 2011 record.

Chinese authorities are trying to identify the source and mode of transmission of the virus, which has been centered in Shanghai and surrounding areas. While there is no evidence that H7N9 is spreading easily among people, it hasn’t been detected in humans before, so they have no natural immunity. That raises public-health concerns, researchers at the Centers for Disease Control and Prevention in Atlanta said last week.

The SARS outbreak in 2003 killed 774 people and caused almost $40 billion in economic losses.

“Unless there are confirmed cases of transmission between humans, the bird flu will only marginally increase the downside risks to economic growth,” said Sun Chi, Hong Kong-based economist at Daiwa Capital Markets. Stock markets have overreacted and “there is very little chance that the virus will derail the economic recovery,” Sun said.

--Kevin Hamlin, Zheng Lifei. With assistance from Zhou Xin, Penny Peng and Nicholas Wadhams in Beijing, Malcolm Scott in Sydney and Eunkyung Seo in Seoul. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff for this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net; Zheng Lifei in Beijing at lzheng32@bloomberg.net.

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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