Every cloud has a silver lining and Asian governments are hoping the same goes for SARS.
The region is reeling from a drop in demand induced by the killer disease, but of greater long-term significance, economists say, is whether Beijing's handling of the outbreak will prompt international companies to spread their risk and divert some China-bound foreign direct investment to other Asian countries.
The beneficiaries of any diversion of FDI would be countries that have coped reasonably well with China's growth, are highly specialised and have relatively low costs.
These would include India, Bangladesh, and Vietnam in textiles, and the Philippines and Malaysia in the case of electronics.
Even though China, with its bottomless pool of cheap labour and rising productivity, will remain a magnet for global manufacturers, economists said SARS at the very least underscored the risks to a firm of putting all its eggs in the China basket.
"I don't know how much, but some export-oriented FDI into China will be up for grabs," said Christa Janjic, an economist with UBS Warburg in Singapore.
China attracted a record $52.74 billion of foreign direct investment last year.
"A lot of the FDI into China was based on expectations, and I am sure that SARS will lead to an adjustment of those expectations," Janjic said.
Severe Acute Respiratory Syndrome has so far had minimal effect on the Chinese manufacturing operations of listed Hong Kong and Taiwanese companies surveyed by UBS Warburg.
But Janjic said Philippine export data this week -- showing a 141 per cent year-on-year rise in March in exports of manufactured products from material imported on a consignment basis -- suggested the Philippines could be seeing a redistribution of production from SARS-affected countries.
"Concentration on any one country is always a matter for consideration, and SARS has perhaps given us a warning on that point," Tasuku Takagaki, former chairman of the Bank of Tokyo Mitsubishi, was quoted by Singapore's Business Times newspaper as saying
Policy risks
A survey by Deutsche Bank of its multinational clients underscored the potential for the rest of Asia to prosper from China's troubles; 39 per cent of those polled saw SARS as a threat to their supply chains that might cause them to diversify their FDI, according to Jun Ma, a Deutsche economist in Hong Kong.
Ma said the perceived risk varied considerably, with electronics exporters in Guangdong much more concerned than investors whose operations are capital-intensive or who are targeting China's 1.3 billion-strong domestic market.
China's communist government has been widely criticised for initially covering up the extent of the SARS outbreak, which originated in the south of the country. With over 4,500 cases and 219 deaths, China is the country hit hardest by the disease.
Tellingly, investors surveyed by Deutsche responded positively after Beijing made a clean breast of the crisis; those who perceived the government's handling of SARS as a policy risk fell to 33 per cent from 58 per cent, Ma said.
With Western executives cancelling visits to China, Ma said FDI in China this year might grow by only 7 or 8 per cent instead of 15 per cent.
That would still be an outcome other Asian countries would die for and underscores the point made by China bulls that multinational firms simply cannot afford not to be in China.
With the global economy under deflationary pressure following the bursting of the 1990s investment bubble, consumers are less willing to pay high prices.
This means production in China, whose costs determine prices for an expanding range of products, is increasingly a competitive necessity, said Andy Xie of Morgan Stanley in Hong Kong.
"If one producer moves capacity formation elsewhere due to its concern over SARS-related risk, that capacity could not achieve profit.
"The only possibility for FDI diversion is that the SARS risk becomes so high that most companies stop investing in China, which would remove China as the price setter. We do not see this likely in the near future," Xie said in a recent note to clients.
