The SARS epidemic in China is testing the Chinese leadership on more than one front. Apart from its economic implications, which are the major concern of the leadership, the Chinese government has to contend with its impact on Chinese polity and society.

The People’s Daily has called the SARS epidemic the toughest challenge for Chinese economy since the 1998 Asian financial crisis. Tourism, aviation, surface transport, and service sectors and their associated manufacturing industries are the hardest hit. The Chinese government has announced tax breaks for the severely affected industries and decided to waive administrative fees related to them.  In Guangdong province alone this could cost the government 900 million yuan over the next three months. The Chinese government has decided to establish a fund of two billon yuan to fight the epidemic and foot the bill for the prevention, control and treatment of SARS in the rural areas which will add to its annual healthcare bill.

The government has been at pains to minimize the long-term impact of the epidemic on the economy to retain and boost investor confidence. The arguments in the official media emphasize that, though investment opportunities may be postponed, they will not shrink. China has reported a trade surplus of US$100 million for the first quarter of 2003 though the disease was spreading very fast during this period. The authorities have stressed the localized nature of the epidemic to argue that its prevention and control is working effectively. However, the regions that are hard hit by the disease include Guangdong, Shanghai, Shenzhen, and Beijing that make important contributions to China’s export led economic growth. This will have an adverse impact on China’s external trade in the short term. According to Chinese calculations, a trade deficit of US$2 billion-3 billion is expected this year due to SARS.

The SARS epidemic has forced the Chinese government to take unprecedented steps to establishing a system of public accountability. China’s health minister and Beijing’s mayor were dismissed for covering up the epidemic. China has also set up a legal framework for tackling public health crises, which includes establishing monitoring, early-warning and reporting systems. Under this regulation, government officials delaying or hiding emergency information or misreporting facts will be held criminally liable. There is an ongoing debate on China’s public health policy in the Chinese media, including an evaluation of the government’s handling of the crisis. This is the first step towards public accountability, hitherto missing from China’s political and administrative systems. Proliferation of mobile phones and Internet in China has made dissemination of information harder to control and this is evident in the inability of the government to keep the SARS epidemic under wraps. This has long-term implications for China’s political and administrative procedures and will stretch the ability of the CCP to control and channelize political discourse in China. However, to make a causal connection between proliferation of information and greater political democratization would be simplistic. The CCP will definitely have to improve its public accountability but political reform will depend more on the inner dynamics of the CCP rather than external factors like the information revolution in China.

The move towards greater accountability has occurred in large measure due to criticism from the World Health Organization (WHO), which is an aspect of the structure on global governance. Media criticism of the handling of the epidemic has compelled the government to allow greater transparency in its reporting procedures. China has never been comfortable with international attention upon its internal matters but, since the SARS epidemic is impacting Chinese economy, the government is in no position to close its doors to sort out this problem. On the contrary, the visits of WHO officials to SARS affected areas in China have been widely publicized in the Chinese media. The government is trying to convince the international community that it is taking this issue seriously.

To add to China’s woes, Taiwan is using the SARS epidemic to stake its claim for membership of the WHO, which implies its seeking international recognition of its independent and sovereign existence. It has convinced many countries with whom it has diplomatic relations to petition the WHO on its behalf for observer status. China is vehemently opposed to any such move because the WHO is a UN affiliated body, and granting Taiwan any kind of official role in any multilateral body of which China is a member would weaken China’s sovereignty claim over the island.

Finally, the SARS epidemic is the first major domestic crises that the post-16^th Congress leadership is facing, and this is an opportunity for the new leaders to exercise their authority. Though the old guard is not in the political center stage, Jiang Zemin is still a very powerful figure in Chinese politics and Hu Jintao will have to earn his place in the pantheon of CCP’s mass leaders. His successful handling of the SARS crises will add to his prestige as an able leader and cement his position domestically. Greater transparency in political and administrative procedures will win him support from the international political and business communities.