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The side effects of the Anti-Corruption Campaign

China's corruption crackdown is bringing down more than officials

05·02·2014

They say power corrupts, so when Chinese president Xi Jinping stepped up to his new position as China’s número uno and introduced the anodyne slogan “Chinese Dream”, large swathes of a cynical public were skeptical about this new leader and what changes he would, or indeed could, bring. However, he swiftly adopted an “I mean business-type” persona for the anti-corruption campaign, promising to punish the “tigers and the flies”, and the world was soon debating just how serious Xi’s purge was.

Fast forward six months and the “Chinese Dream” remains nebulous, the airy stuff of a bland marketeer, with its unoriginal echo of another national dream, from a different country far, far away. The anti-corruption campaign, however, is seemingly doings its job and some tigers have been brought down, some veritable lions even. How much good this is doing is up for debate.

The more immediate effects of the crackdown and its attendant frugality campaign, however, are far more apparent. Perhaps a sign of just quite how entrenched and endemic this corruption became can be seen in the wide spectrum of industries that are now suffering due to Xi’s firm and penetrating gaze: entertainment, fine dining, alcohol, transport, tobacco, hotels, prostitution, and even the civil servant job market are all suffering as the corrupt dime loses its value.

1. Domestic and Imported Alcohol in Decline

Treating people to long liquid luncheons and drinking are prerequisite social skills in China. Toasting higher-ranking officials and those in power is an all-too-common way to clamber up the power ladder in an effort to reach the top and in turn be granted all the benefits that power brings. This intensely boozy drinking culture, notorious for its periodic cases of alcohol poisoning, has been curbed by the state’s frugality campaign, which now forbids officials and civil servants from using luxury brands of alcohol in formal receptions, gatherings, and the holding of extravagant banquets. As a result, Chinese’s favorite liquor baijiu, not to mention a variety of upmarket foreign liquors, are suffering.

France’s export Cognac to Asia decreased by nearly 10 percent this last year, according to statistics by BNIC (the Bureau National Interprofessionel du Cognac). The decline is partially attributed to China’s anti-corruption campaign, China.com.cn reports. The lowering of certain parts of the nation’s “lifestyle” expenses has undoubtedly affected the consumption of Western wine and hard liquor, especially luxury brands. The Drinks Business reports on who is feeling the most pain:

“Pernod Ricard was forced to revise its 2013/14 earnings forecast as an 18% decline in China pushed overall sales down by 7% for the first half it its year…

Likewise Rémy Cointreau saw sales of its flagship Rémy Martin brand slip by 11.7% in its own half-year report, blaming ‘the unfavourable situation in the Chinese market for imported spirits.'”

It seems there are going to be less hangovers all around. Pernod Ricard claims that 20 percent of its sales in China are from KTV earnings, which have dropped in double digits since the turn of  year. KTVs and clubs in China are suffering due to a nationwide crackdown on that oldest of professions: prostitution. Government officials are known to frequent these nightlife businesses, squandering government money by accepting favors from other officials or businessmen. Those favors: sexual favors from high-end hostesses.

 

2. “No-star Hotels”

The basic instinct for any hotel, one would think, would be to be as nice as possible, offering all the best services possible. However, the anti-corruption and frugality campaigns have seen a spike in a rather bizarre phenomenon. Chinese hotels go against their traditional instincts and desperately beg to be downgraded. Numerous five-star hotels are asking to have their stars dropped and the only logical explanation is that China’s luxury hotel industry was fueled by government officials.

Xinhua reports that Chen Miaolin, a deputy to the National People’s Congress, said at the beginning of this year, “a lot of local governments have proposed not going to five-star hotels to spend money, so in order to survive many five-star hotels can only ‘decrease stars'”. He added, “56 five-star hotels asked for a ‘star decrease’ in 2013; more hotels who were going to apply for the five-star status halted their application”, and some decided not to apply at all. There have also been a wave of high-end conference lunch cancellations. Since the crackdown, hotels in mainland China have lost a quarter of their annual revenue due to the loss of their “corrupt officials” clientele.

Hostess clubs and private clubs are now also an endangered species. These locales are favored by officials for their privacy, which help them to keep bribery and spending low key. In the case of Hao Heping, a former senior official with the State Food and Drug Administration, his membership cards at golf clubs alone valued more than 500,000 RMB, and there is not a single report of him being even remotely good at golf.  However, part of the corruption crackdown includes these exclusive, often raunchy, clubs, which has forced many to shut down or transform. According to a China Youth Daily report, the more than 30 high-end lounges and clubs near Hangzhou’s West Lake alone have closed down. Their storefronts were ordered to change to cultural or nonprofit businesses such as exhibition spaces, libraries, and artifact protection organizations — a far cry from the whoring and fine dining that once took place. Only one restaurant was allowed to remain,  but it was ordered to offer friendly pricing and target the common people. Faced with this series of crackdowns, a hostess club industry insider told a reporter that she may change her career because even the most private clubs are losing money despite their high security and complete confidentiality.

 

3. No more easy “Iron Rice Bowl”

Every Chinese person, or at least every Chinese’s parent, wants to get in on the “Iron Rice Bowl” to guard themselves against the fluctuating job market, potential economic crisis, and aging. The civil service exam has always overflowed with applicants, yet the number of government job seekers has rapidly dwindled since the anti-corruption campaign and frugality movement began to affect civil servants’ benefits.  According to Caixun, the number of applicants for local government positions decreased by 350,900. As a Financial Times article described:

“The number of test-takers fell by as much as a third in some provinces, and others recorded a rate of no-shows that was the highest in history, according to the Chinese press. They appear to have been put off by cuts in benefits such as low-cost healthcare and housing subsidies, along with the high-profile anti-corruption crackdown that has choked off the flow of grey income into that old rice bowl.”

The government has released a series restrictions on the benefits enjoyed by being a government employee, which include:

  • The majority of conferences must be held in 4-star hotels or lower.
  • Occupied real estate such as residential and office areas will be fully listed by 2016. Excessive real estate will be taken away.
  • The supply and sale of luxury cigarettes will be controlled.
  • The relocation of personal properties overseas will be limited.
  • Using public funds for festival gifts, feasting, travel, and high-end entertainment is forbidden, as are the inappropriate distribution of subsidies, and bonuses.
  • The scale of conferences will be heavily controlled, conferences cannot be held at scenic spots.

These policies have seen some interesting results, with 48 state departments announcing that they have no plans to purchase new vehicles in 2014; local governments in places like Jilin and Zhejiang are auctioning off their cars. Expensive cigarettes, luxury brands, and real estate have been having a difficult time as well. China’s anti-corruption campaign, so it seems, has affected most of the relevant industries significantly.

Xi Jinping may have tightened his grip on corruption, but a perhaps unexpected result is the decline of several Chinese industries. Many corrupt officials are going down, but not always willingly. Before former Party chief of Maomin Luo Yinguo was sentenced to death, he said:

 “Who isn’t a corrupt official, can you name one official at my level who is not corrupt?… Those who are investigating me, are you innocent? Look at the clothes you wear, the cigarettes you smoke, the watches you wear, which of them doesn’t cost 100 or 80 thousand? Which of you don’t smoke hundreds of thousands yuan worth of cigarettes? Are your salaries enough to afford your smoking?”

Right now, the frugality campaign is having significant results because anti-corruption is high on Xi’s agenda, but how many really believe that the corrupt habits and ideas of officials are being completely overhauled by these tightening policies?

 Image courtesy of yeeyan.org

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