Now For The Avian Flu's Side Effects

The disease is clobbering Hong Kong's tourism and other industries

The mysterious "bird" flu was the last thing that beleaguered Hong Kong needed. Fearing an epidemic, residents have already struck chicken from their diet. And on Dec. 29, government health authorities slaughtered some 1.3 million chickens and other poultry suspected of carrying the virus.

Any business with a real or imagined link to the tainted birds is feeling the side effects. Sales are down 10% to 15% at KFC Corp., even though the local outlet imports all its chickens from the U.S. "We're doing our best to ride this out," says Arthur Ho, CEO of Wybridge Holdings, the privately held franchisee.

LATEST BLOW. The flagging tourist industry, which had already suffered a 10% decline in arrivals this year, is also feeling the effects of the bird flu. Cathay Pacific Airways Ltd.'s earnings are down an estimated 35% for 1997. The airline says so far there have been few cancellations related to the scare, but travelers to Hong Kong are constantly ringing Cathay Pacific offices for more information about the virus known as H5N1, which has killed four people and sickened 20 others.

The bird flu is the latest in a series of crises for the island. Since its return to Chinese sovereignty last July, Hong Kong has suffered from a major downturn in tourism, plunges in the stock and property markets, and speculative attacks on the Hong Kong dollar. The flu is "one more psychological blow," says Christopher Wood, equity strategist for Peregrine Securities.

Agricultural companies clearly will take a hit. Guangnan Holdings, a $740 million red chip specializing in agricultural goods, is preparing for a big slowdown in chicken sales. The company will try to make up for those losses by selling more frozen pork and fish.

Executives of Guangnan, which distributes 80% of Hong Kong's live chickens from the mainland, say the slaughter could clean up the market in more ways than one. They hope tighter regulations could drive off chicken smugglers, who they say bring in as much as 25% of the chickens imported from China to Hong Kong.

It's those chickens from China, however, that leave many wondering if the slaughter will work. Some health experts believe the virus originated on the mainland. But the Guangdong Provincial Agricultural Bureau says it has "not found any cases of H5N1" in the province and insists it has kept a "close eye on chicken farms." World Health Organization leaders hope to visit China in January to examine virus-detection techniques.

Hong Kong residents hope that destroying the poultry will halt the spread of the bird flu. But even if it does, that's unlikely to cure Hong Kong's malaise. With a weakened stock market and a slowing economy, it will take more than a health department order to give Hong Kong a clean bill of health.

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