Another bird flu – H7N9 and its potential economic effects

Danny Wang


May 5th, 2013

Bird flu and the consequent economic disruptions – from tourism to shuttlecocks.

Learning of China’s recent cases of ‘bird flu H7N9’ immediately triggers chilling memories of the SARS outbreak of 2002-2003. Originating in southern China, SARS (severe acute respiratory syndrome) infected over 8000 people internationally with an estimated fatality rate of 9.6%. Economically, the outbreak had wide-reaching effects, ranging from an understandable plummet in tourism to the near-desertion of cities’ transport systems, restaurants and stores (pharmacies excepted). With the death toll of H7N9 reaching the twenties at the time of this article’s publication, there are renewed fears of another SARS-type outbreak in China’s densely populated cities.

Brahmbhatt and Dutta of the World Bank noted in 2008 that ‘infectious disease outbreaks can…create severe economic disruptions even when there is, ultimately, relatively little illness or death’.  These disruptions, they found, usually arise from individuals’ ‘panicky’ and often medically baseless efforts to protect themselves from infection. During the SARS outbreak, panic disseminated quickly throughout China despite initial government efforts to prevent circulation of SARS-related news. Needless to say, widespread distrust of the government did little to allay the population’s concerns about the spread of the disease. Beijing in particular was seen as a hotspot for SARS, such that by the end of April 2003 almost 10% of the city’s population were estimated to have fled the city (Pomfret 2003b). A survey of Beijing’s tourist attractions, hotels, railways, restaurants, taxis and other businesses conducted in April 2003 revealed that some businesses experienced falls in revenue of up to 80%. In addition to China, other SARS-affected economies, notably Hong Kong, Taiwan and Singapore, experienced temporary declines in tourism exports and consumption by residents. One estimate by Hanna and Huang (2004) quantifies the total economic cost to China of the disease outbreak as 1.5% of the country’s 2003 GDP growth.

The Chinese government’s notorious slowness in notifying the WHO of the SARS outbreak sparked intense criticism from the international community at the time. It was not until six months after the beginning of the outbreak that the government allowed an international investigation, by which time the disease had already almost reached pandemic state. In contrast, WHO officials have praised the government’s transparency in handling the current H7N9 outbreak after a recent investigatory mission to affected areas. Authorities have actively engaged in communication with the WHO with updates whenever new cases or deaths are observed.

So far, the H7N9 outbreak is geographically restricted to eastern China and Taiwan. Transmission has only been observed to be between birds and humans. However, World Health Organisation officials have been expressing concerns about the possibility of H7N9 mutating into a form such that it can be transmitted between humans. Should this mutation occur, infectivity would expectedly increase dramatically, confirming the possibility of H7N9 developing into a full-fledged epidemic. Citing the severity of the pneumonic symptoms experienced by patients, WHO officials have described H7N9 as ‘definitely one of the most lethal influenza viruses we have seen so far’. Though uncertainty remains on the question of how exactly the disease is being transmitted, experts have pinpointed live poultry markets as a prime culprit. The WHO has stressed the importance of strict regulation of hygiene in markets rather than longer-term closure to ensure that the bird trade is not ‘diverted into uncontrolled distribution channels’.

Needless to say, the economic disruptions of the outbreak are becoming increasingly apparent. Chinese government sources claim that the local poultry industry has suffered losses of over 10 billion Yuan over the past month. Authorities in cities including Shanghai and Hangzhou have closed some major poultry-trading areas while culling birds in live markets where H7N9 has been found. In some areas, suppliers have been forced to kill their stock because they have run out of storage space. More indirectly, market panic has generated reactions across the broader economy. Though only reported to be present in a handful of eastern provinces in China, consumers across the nation are shying away from poultry and poultry-derived products, ranging from eggs to shuttlecocks. Despite government reassurances of the safety of products purchased from regulated vendors, sales in China’s KFC restaurants fell over 20% over the first quarter of the year.

Contrastingly, for some, the virus has brought new business opportunities.  Vegetables have risen rapidly in price over the last month, as have various forms of traditional Chinese medicine believed to protect against the bird flu. One of the nation’s major insurance companies, ‘Ping An Insurance’, is now selling ‘bird flu insurance’, offering 20,000 Yuan to customers that are confirmed to be infected by H7N9. On a wider level, for now, other sectors do not appear to be affected in any major way. After an initial drop at the start of April, share prices of major airlines seem to have now stabilised. Analysts attribute this to the absence of travel warnings issued by the local or foreign governments, as well as WHO reassurances of the safeness of travel. Nomura’s Asia Chief Economist Robert Subbaraman has said that the H7N9 outbreak is unlikely to significantly impede GDP growth as yet, predicting ‘limited impact on second quarter GDP growth’ in the worst-case scenario.

As noted above, it is not necessarily the deadliness of a disease but rather the fear it generates that causes economic disruptions of the magnitude of that of the SARS outbreak. Analysts remark that the government’s surprising level of transparency has done much to alleviate public panic and confusion about the H7N9 outbreak. Clearly, the authorities do not wish to repeat its traumatic experience with SARS. Nonetheless, questions remain unanswered. The WHO cannot yet confirm whether live poultry is the primary or only source of infection, raising speculation that other forms of livestock may also be or become vehicles of transmission. WHO officials have emphasised the need for vigilance and preparedness in the case of further mutation of the disease. In terms of the economy, the mid to long-term effects of the outbreak remain to be seen. Needless to say, amidst a tremulous economic recovery, H7N9 is one more bird for the Chinese government to kill with its dwindling store of stones.



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