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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: EL KABONG!!! who wrote (31998)4/21/2003 3:53:11 AM
From: EL KABONG!!!  Read Replies (1) of 74559
 
online.wsj.com

China Admits Spread of SARS Is Worse Than It Disclosed

In Rare Move, Beijing Fires Two Officials In Bid to Restore Government's Credibility

By PETER WONACOTT, CHARLES HUTZLER and KATHY CHEN
Staff Reporters of THE WALL STREET JOURNAL

BEIJING
-- China's leaders came face to face Sunday with growing anger at home and abroad over their response to a deadly strain of pneumonia. And they blinked.

Approaching one of their worst international crises since the Tiananmen Square demonstrations of 1989, China's leaders Sunday moved to address their mounting credibility problem. They essentially fired two senior officials -- the country's health minister and the mayor of Beijing -- and admitted in a nationally televised news conference that the number of people with SARS, or severe acute respiratory syndrome, in the nation's capital is almost 10 times the number previously reported. In a bid to slow the spread of the disease, the government also canceled a weeklong national holiday scheduled for May, upending plans of millions of Chinese who were planning to travel around the country.

The dramatic turnaround, coming after weeks of government dithering and denials, shows how high the stakes have become for China in the current health crisis. China today is a significant player in the world trade system, drawing in more than $50 billion a year in foreign investment. The host of the 2008 Olympics, China is also increasingly visible in geopolitical politics.

"If the SARS problem isn't dealt with well, our foreign relations and international standing will be damaged" as it was after the Tiananmen Square massacre, said a delegate to the Chinese People's Political Consultative Conference, a government advisory body.

The decisive moves also underscored the dangers challenging the recently installed leadership under party chief Hu Jintao. In a new China connected to the outside world by the Internet and satellite television, government denials that SARS was spreading were met by growing disbelief and anxiety among citizens.

"If this problem grows even bigger, the legitimacy of the government will be questioned," said the Chinese delegate. "This is no small matter."

For China, the new numbers underscore that the crisis is far from under control and point to the bigger challenge ahead: dealing with the spread of the virus into the hinterland, where medical care and resources can't compare with those enjoyed by Beijing and Guangdong. On Sunday, state-run television said the central government has allocated nearly 3 billion yuan, or $360 million, to fund SARS prevention in central and western provinces.

According to the Ministry of Health Sunday, nine other provinces or cities have confirmed SARS cases besides Beijing and Guangdong. Among the hardest hit are the central coal-mining province of Shanxi, with 108 cases, and Inner Mongolia with 25 cases.

Early this month, Health Minister Zhang Wenkang insisted the SARS outbreak had been brought under "effective control," even as hospitals appeared to be taking in many new SARS patients and a few Chinese doctors spoke out against government efforts to conceal the problem.

That official picture fell apart Sunday, with admissions that the government had failed to centralize SARS information from dozens of hospitals that operate under different government departments or the military. In a reversal, the Ministry of Health raised the number of SARS patients in Beijing to 339 from last week's total of 37. Officials noted that a separate 402 suspected SARS cases in Beijing will probably add to the city's tally in the days ahead. All told, China reported the number of SARS cases had climbed to 1,807, in which the suspected source of the outbreak, southern Guangdong province, still led all places with 1,304 patients. An average of 4.3% of the patients had died in China from the illness, the ministry said. In Hong Kong, officials had been saying the death rate was about 5%, but there are indications that that is too low.

'Not Well-Prepared'

"In terms of our work, the Ministry of Health was not well-prepared," said Vice Minister of Health Gao Qiang, reading a statement at the news conference in which his boss, Mr. Zhang, originally had been scheduled to appear. "Public-health preparation was insufficient and epidemic prevention was relatively weak." The vice minister added that "these problems should be honestly addressed and we should draw lessons to improve."

Shortly after the two-hour news conference, the official Xinhua News Agency announced that Mr. Zhang, the health minister, and Beijing Mayor Meng Xuenong had been stripped of their party jobs, a likely prelude to dismissal from all their posts.

Even given the mounting international criticism, the dismissals of top officials was a surprise. Senior officials in China are rarely sacked as punishment for negligence or ineptitude. Mr. Zhang, the health minister, had weathered China's dilatory -- and some say still inadequate -- response to AIDS, which is cutting a swath through rural inland provinces.

But for the Hu leadership, letting the SARS crisis evolve unchecked also risked undermining the political image the five-month-old administration has tried to create -- that of sympathetic champions of farmers, workers and the disadvantaged. President Hu and Premier Wen Jiabao made well-publicized tours of hospitals treating SARS patients in the past two weeks even as the World Health Organization was accusing Beijing of dragging its feet on the epidemic. "They came in saying 'We care.' And they had set themselves up for a cynical response: 'They don't care,' " said a Western diplomat in Beijing.

The efforts at damage control were also aimed at calming a surprisingly influential new constituency in China's political system: foreign business. China's entry into the World Trade Organization in 2001 married the country to the course of economic liberalization, as the government promised to dismantle more barriers that had long protected state industries.

The embrace of economic globalization has paid huge dividends for China's Communist government. Tourism and business have boomed. China attracted $52 billion in foreign direct investment last year, surpassing the U.S. as the world's biggest recipient.

But that embrace has meant the government is suddenly beholden to the foreign business community in a way it never was in the past. After the Tiananmen Square crackdown, foreign confidence was ruined, but the economy wasn't. But as international conferences and travel plans were canceled in recent weeks, China began paying an immediate price for shading the truth on SARS. Many officials worried that critical foreign capital flows could dry up if foreign confidence continued to plummet.

"Chinese political culture is making adjustments to the modern economy," says Andy Xie, a regional economist in Hong Kong for Morgan Stanley.

It remains unclear who ultimately was responsible for the underreporting and alleged coverup of SARS cases in Beijing. During the news conference, the vice health minister blamed the system, including poor coordination among hospitals that report to different masters, from the military to the city government to central ministries. But he also said the health ministry was to blame.

Some political analysts view the health minister and the Beijing mayor as scapegoats. They say China's top leadership probably knew there was some underreporting going on. China has long had a history of officials sweeping bad news under the rug, to keep such information from both the public and higher-level officials. Officials in the northeastern province of Liaoning failed for weeks to make public news that some 3,000 students had been poisoned by soy milk they drank in a school dining hall on March 19. The incident, in which several children died, didn't come to light until three weeks later, partly thanks to aggressive reporting by the state-run media.

"Top leaders are likely to consider that if they were to report too many [SARS] cases, this would affect stability," says a Chinese political scientist.

Political Challenges

Even if Sunday's actions manage to restore a measure of credibility to the administration, its handling of the outbreak to date also underscores deep-seated political challenges unlikely to disappear without more fundamental change. Above all, despite the country's reputation as an authoritarian state, the central leadership has a seemingly limited writ, unable to impose its will on recalcitrant local government.

WHO officials say much of the resistance they encountered trying to get investigation teams into Guangdong province, where the outbreak originated, and later into Beijing came from local authorities. The intercession of a vice premier, Wu Yi, also initially failed to change the attitude of Beijing city authorities, WHO officials say. Ms. Wu ultimately sent her own teams to investigate the outbreak in Shanxi province, so unsure was she that the provincial government would report the situation truthfully.

Complicating this center-local tug-of-war are equally turf-conscious government bureaucracies which have resisted coordination. As a result, the leadership often appears plodding, instead of engaging in effective crisis management.

The leadership under Mr. Hu's predecessor, Jiang Zemin, ordered a study to set up a U.S.-style national security council that would coordinate policies among foreign affairs, the military and the intelligence and internal security services. But such a council has never been put in place. That is in part because of power struggles between the bureaucracies but also because the leadership has so far managed to muddle through. "I think we need more crises," says an occasional adviser to Mr. Hu who has advocated better crisis management.

-- Karen Richardson contributed to this article.

Write to Peter Wonacott at peter.wonacott@wsj.com, Charles Hutzler at charles.hutzler@wsj.com and Kathy Chen at kathy.chen@wsj.com

Updated April 21, 2003


KJC
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