Convention downturn hits HK, Singapore - Update - economic effects of SARS, Hong Kong

Business Asia, May, 2003

There is no doubt that the SARS virus is having a drastic effect on business in Asia. One of the main victims of the resulting fear is the multi-billion dollar events industry. Hong Kong and Singapore's US$13 billion conference industry is suffering the most, with conventions ranging from microchip equipment and precision machinery shows to Asia's biggest food fest being halted (with the latest to be cancelled being the large CommunicAsia convention in Singapore). For the two cities, the losses will slow growth in economies struggling to recover from recession, hitting a niche business both have spent more than a decade building. The Singapore Government spent S$220 million ($197 million) building Singapore Expo, which opened four years ago and is said to be the largest convention centre in Asia outside Japan. Hong Kong's Government in December agreed to provide HK$2 billion ($406 million) to help finance the construction of a 100,000 square metre International Exhibition Centre at the airport. Convention-related business accounts for five per cent of the economies of Hong Kong and Singapore, analysts estimate, with spin off business in premium hotels and entertainment. Singapore reports that visitors to the island fell 71 per cent in the third week of April. Hong Kong says tourist arrivals probably slumped 70 per cent in April. Although the World Health Organization says Vietnam has contained the disease and cases in Singapore and Hong Kong are decreasing, analysts say the region will not attract many business travellers for at least six months.

Hong Kong

Hong Kong's export growth unexpectedly picked up last month as worldwide demand for China-made goods surged. Shipments will probably continue to grow in coming months unless the SARS virus hampers production in Chinese factories. Overseas sales rose 15.4 per cent from a year earlier to HK$143 billion ($29.2 billion), according to the Government. Amid falling domestic consumption, surging exports and record tourism were the twin pillars that helped Hong Kong's economy grow five per cent in the fourth quarter, its fastest pace in two years. Overseas sales are now the sole driver of the city's economic growth as disease keeps visitors away. Tourist arrivals have dropped by half since the mid-March outbreak of SARS, as Hong Kong accounts for about a third of overall cases. That's keeping overseas buyers away from Hong Kong, and travel restrictions imposed by foreign governments are making it harder for local businessmen to sell their wares abroad. About 90 per cent of the city's exported goods are made elsewhere, mostly in China, and pass through Hong Kong en route to buyers.

Japan

The average monthly wage paid to Japanese employees has taken its biggest drop in 11 years, falling 2.1 per cent to 343,125 yen ($4,608) in fiscal 2002, the Ministry of Health, Labor and Welfare says. The drop is the largest since fiscal 1991, the latest year for which comparable data is available. In the fiscal year ended 31 March, specially paid wages such as bonuses averaged 64,127 yen a month, down 7.3 per cent, which is the biggest drop on record. The findings suggest deflation is taking a toll on wages, making it likely that sluggish consumer spending will continue. The data refers to businesses that employ five or more workers. The average amount of monthly overtime hours rose 3.1 per cent to 9.7 hours. At manufacturing businesses, overtime hours jumped 11 per cent to 14 hours, which is a key measure of economic activity. The number of workers on permanent payrolls fell 1.8 per cent to 33,547,000 for the fifth straight annual dip. The decline was the largest on record. In contrast, the number of part-time workers rose 3.6 per cent, signalling that corporations are employing more part-time workers to cut labour costs.

Malaysia

Citigroup Inc knocked Credit Suisse First Boston from second-ranked takeover adviser in Asia outside Japan after it closed two billion-dollar deals for Malaysian clients in a week. Citigroup advised Malaysia International Shipping Corp on its acquisition on 29 April of Singapore's American Eagle Tankers Ltd for US$1 billion ($1.58 billion). It also advised the shipping company's parent, state-owned Petroliam Nasional Bhd, on its US$1.76 billion purchase six days earlier of Edison SpA's gas reserves in Egypt. The acquisitions offer more evidence of how far Malaysia has come in the four and a half years since pegging its currency to prevent a financial collapse. YTL Corp and other Malaysian companies spent 60 per cent more on overseas assets in 2002 than in the previous four years combined, according to Bloomberg data. Richard Seow, Citigroup head of investment banking for South-East Asia, says Malaysian companies have not been standing still, and have continued to position themselves. Some Malaysian companies, as well as others in the region, have strong balance sheets and can raise funds at low cost, he says. Falling stock prices worldwide means assets are cheap--and owners of ailing companies more motivated to sell.