China's Next Challenge:
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China's Next Challenge: "Health Drain"

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The SARs outbreak in 2002 – 2003 was a significant turning point in China’s development.  Initial attempts to cover-up the outbreak in southern China were partially blamed for the disease’s spread to the rest of the world via Hong Kong. Eventually, Beijing had to issue an embarrassing apology and change its methods of dealing with such health crises. During the outbreak though, SARs caused many people to leave the country, and indeed those of us in China in 2003 can vividly recall ubiquitous face-masks and an eerie lack of foreigners in cities such as Shanghai and Beijing.

Since then, bird flu and swine flu outbreaks have been dealt with a much greater degree of openness and professionalism.  The latest version of bird flu to emerge in China is known as H7N9. Fears surrounding its spread and distrust of official disclosure have already begun to weigh heavily on market sentiment in Shanghai.  Following the Tomb Sweeping Holiday in China, Shanghai markets opened down nearly 2% on Monday morning, which many attributed to the rising concern about H7N9. Although the market eventually rallied to close down just 0.6%, a brief look at the main gainers during the day shows a conspicuous number of pharmaceutical and biotech companies such as Zhejiang Shenghua Biok Biology, Jiangxi Changjiu Biochemical Industry, Guangzhou Pharmaceutical, Henan Taloph Pharmaceutical and Nanjing Pharmaceutical.  Clearly, the virus (and possible beneficiary companies in the event of its spread) was on the market’s “mind.”

The “river pigs” scandal near Shanghai has yet to be properly explained, but given a further discovery of dead ducks in a different river, and the ability of other flu viruses to cross species between birds and swine, it hasn’t taken long for people to begin (rightly or wrongly) drawing connections between the two phenomena. High feed prices have apparently made hog-rearing a profitless exercise for many farmers, and the pig carcasses could be related to the slaughtering of loss-making herds, although the question would then turn to why the farmers dumped the meat rather than sell it even at low prices.

At the time of writing, mainland China has 21 confirmed cases of H7N9, with 6 deaths and 12 patients with severe symptoms, according to the most recent update from the World Health Organization. Yet lingering doubts about Chinese disclosure at a local level – a natural concern given the SARs cover-up – along with ongoing distrust of China’s official media, provides ample space for conspiracy theories— such as that the virus is a U.S. bio-psychological weapon as one military officer claimed— to take hold.  

However, a new burst of face-mask clad people will not be such an unusual sight this time around, for it has already been a difficult year for health in China. Record levels (at least acknowledged levels) of pollution in January, February and March already garnered much media attention. So widespread was the discussion that face-masks once again became common sights on the streets of some Chinese cities even before fears of H7N9 spread.

At this point, there are no signs that H7N9 has caused a flood of expats and well-off locals out of China along the lines of what occurred during the SARS outbreak, but HR departments in China’s major cities are almost certainly closely monitoring the situation.  Furthermore, even if the H7N9 virus turns out to be less serious than some fear, the ongoing problems with food safety and pollution will probably continue to push some of those who can leave to do so.  

After all, if H7N9 were to reach a tragic death toll of 400,000+ people per year, few who didn’t have to stay in China would do so. Yet the World Bank has reportedly estimated that almost double that amount of people die prematurely each year in China from pollution related illness.

“Brain Drain” afflicts a country when the best and brightest of a country opt to use their talents abroad. China, with its latest flu outbreak but more importantly its appalling environmental situation, may well be on the cusp of coining a new term; perhaps “health drain,” with the negative economic effects that such a phenomenon would entail. 

James Parker has lived in Beijing for eight years and has worked at both foreign and domestic financial institutions. He is also engaged in consulting in the areas of international economics and international political risk, and teaches post-graduate finance courses for various UK Universities. He is currenly a writer for The Diplomat's Pacific Money blog.

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