President Xi’s campaign against corruption and extravagant spending may be improving the public’s perception of the government, but it’s also affecting the global luxury goods market.
Describing corruption as a “disease that calls for powerful drugs,” Chinese President Xi Jinping promised an even stronger crackdown on graft when he addressed the Chinese Communist Party’s anti-corruption agency on January 14. The talk accompanied the release of new party rules regulating promotion and corruption and a report that found China’s discipline inspection agencies have punished about 182,000 officials in 2013, roughly 13 percent more than in 2012.
Since Xi announced a crackdown on corruption among government officials in November 2012, multiple anti-graft and anti-extravagance measures have been passed by government agencies at the central and local levels (see table below). These regulations against decadence ban the use of luxury cars, eliminate lavish gifts for government officials, and limit the scope of galas, official dinners, and special privileges that party cadres have long enjoyed.
The regulations have allowed the Xi administration to single out officials for punishment, starting at the local level and moving up the ranks of party hierarchy. A recent survey of Beijing-based junior civil servants found that nearly every interviewee believed the bans on gifts to be “very strict,” and said additional prohibitions affected their lives personally and financially. As the survey suggests, the implementation of such bans has left every official vulnerable, helping to create an environment in which the Xi administration has been free to crack down on low-level “flies” as well as high-level “tigers.”
Some of the “tigers” caught up in the crackdown were rising party elite: Zhou Zhenhong of the Guangdong Communist Party standing committee, Liu Tienan of the National Development and Reform Commission, former Anhui deputy governor Ni Fake, and others. All had their cases transitioned to prosecutors in 2013. An additional 23 corruption cases–including those of Jiang Jiemin, former head of State-owned Assets Supervision and Administration Commission, and Li Dongsheng, former vice minister of public security—are still under official investigation.
Since Xi’s comments to members of the Central Commission for Discipline Inspection earlier this month, many anticipate his crusade against corruption will intensify. Bans on extravagance are unlikely to plateau in the near future, according to analysts. Below is a list of all anti-corruption measures passed since late 2012.
- Automobiles Access to vehicles is a perk provided to ranking members of the Chinese Communist Party and to government officials. The use of higher-end vehicles has occasionally been targeted under anti-extravagance campaigns. Under new regulations implemented on May 1, 2013, luxury foreign automobile brands such as BMW and Bentley are no longer eligible to receive military and armed police license plates, unless they are registered as military equipment. China’s State Council also released regulations in November 2013 that banned provincial level officials from using government cars for general use, excluding vehicles needed for law enforcement or emergency-response services. Finally, a directive released by China’s State Council on January 14 bans the Chinese military from purchasing any foreign made vehicles.
- Galas and Official Dinners On November 25, 2013, central authorities issued a written regulation to standardize the management of public funds and ban all levels of government from using public funds to organize galas, which have often been staged with expensive performances and outlandish menus. In a follow up to these restrictions, in December the central government banned official dinners from including shark fin soup, bird’s nest soup, and wild animal products, while cigarettes and upscale liquor were also prohibited from official banquets. The new directives have been reported by the Western and Chinese press as an attempt to curb graft by altering the culture of extravagance at official functions.
- Special Privileges Over the years, the Chinese public has often criticized government officials for “operating above the law” when it comes to special privileges such as VIP membership cards and motor vehicle permits and passes. Wang Qishan, CCDI secretary, demanded in May 2013 that his staff return all VIP membership cards received as favors before the end of June 2013. Several months later, China’s State Council released legislation restricting public funds for travel purposes, and on January 2, the Beijing Traffic Management Bureau announced the beginning of a campaign to phase out traffic permits and passes that allow driving privileges, such as free parking and no legal penalties for running red lights.
Impact being felt in the luxury goods and travel industries
Such action-oriented policies against corruption and spending are likely to have a positive effect on the Chinese public’s perception of governance, but an adverse effect on the global market for luxury goods. In 2013, China made up 29 percent of luxury spending globally. But since the State Council and other agencies started issuing bans on extravagance—the most recent of which is a long-term (2013-17) anti-corruption plan—the crackdown on graft has had negative implications for many sectors, including property, construction, liquor, jewelry, autos, department stores, tobacco, and tourism. According to a report by Bain & Co., China’s growth in luxury spending dropped from 7 percent in 2012 to just 2 percent in 2013, the slowest pace since 2000.
The Hurun Report, a publication that chronicles the wealthy in China, said in its 2014 Luxury Consumers Survey that compared to 2013, 25 percent fewer respondents plan to give a “very expensive gift” (worth $826 or more) at Chinese New Year. Additionally, since Xi’s austerity campaign, China’s high-end hotels have experienced considerable drops in their occupancy rates. Before the campaign, government bookings accounted for more than 40 percent of sales for business hotels. Now, business has fallen by more than 50 percent.
Timeline of China’s anti-corruption regulations
December 5, 2012
The Chinese Communist Party’s (CCP) Politburo unveils a lengthy list of “do’s and don’ts” for top leaders, saying the objective is to “genuinely win the confidence and support of the people.” The list calls for leaders to attend ribbon-cutting ceremonies only if they receive permission from party authorities, ensure that official motorcades pose fewer disruptions to normal traffic, and avoid lavishing red-carpet treatment on other officials in a bid to improve the public image of the party.
March 31, 2013
China announces a new license plate system for vehicles belonging to the military and armed police. Under new regulations, luxury brands belonging to global auto makers from BMW to Bentley will not be eligible to receive new military license plates, unless they are registered as military property.
May 27, 2013
Wang Qishan, secretary for the Central Commission for Discipline Inspection, demands disciplinary and supervisory staff to return all membership cards received as favors or gifts. Wang said that although membership cards may seem minor, they reflect a “big problem” in working style. He further said that disciplinary officials must “make themselves upright” before asking the same of others.
August 13, 2013
Xinhua News Agency reports that all levels of government will be barred from using government funds to organize extravagant galas staged with expensive celebrities and performances. Officials will punish organizers of “expensive or wasteful celebratory events.”
November 25, 2013
China’s State Council releases regulations that ban provincial-level officials from taking official cars for general use, excluding vehicles needed for law enforcement or emergency-response services. The rules also prohibit officials from using public funds to travel abroad in the name of official business and emphasize that government buildings—many of which have been the subject of public criticism for their extravagance—can no longer be built as city landmarks.
December 8, 2013
The central government bans official dinners with shark fin soup, bird’s nest soup, and wild animal products as part of a new directive, according to the Wall Street Journal. Xinhua reports that cigarettes and upscale liquor were also banned from official functions and banquets. Officials below the provincial level cannot stay in suites when on business trips, while their hosts are banned from giving them cash, souvenirs, or local products as gifts. Officials on business tours are also required to arrange their own meals according to relevant expenditure standards.
December 25, 2013
The Central Committee of the CCP releases a long term (2013-17) anti-corruption plan calling for an improved legal system to ensure effective implementation of various anti-decadence regulations, specifically those involving the use of public vehicles, the construction of office compounds, business receptions, and overseas trips. The plan also calls on government departments at all levels to step up the public release of their budgets and work projects.
January 1, 2014
New rules revealed by the State Council in December come into effect. Mainland residents are officially required to declare their financial assets and liabilities overseas.
January 2, 2014
The Beijing Traffic Management Bureau announces a campaign to phase out traffic permits and passes that allow for special driving privileges such as free parking and no legal penalties for running red lights.
January 13, 2014
A directive is issued by China’s State Council ordering its military to purchase only domestically branded cars. The directive comes on top of new rules announced last year that tighten the use of military license plates on luxury vehicles, according to the official Xinhua News Agency. The State Council’s directive also includes a slew of new measures such as a centralized system for military-car purchases, tamping down on the extravagance of military offices and housing, and limiting expenses on events, business trips, and banquets, and banning gifts.
January 15, 2014
The People’s Daily published a revised version of the “Work Regulations for the Promotion and Appointment of Leading and Party Government Cadres.” This document provides new norms required for appointment to senior positions in the government and the CCP. For example, leading cadres must “put virtue first,” and officials with wives or children living overseas are no longer eligible for promotion. Other changes will also be made to the process of cadre evaluation to include factors like the employment rates, per capita income, and levels of technological innovation, healthcare, social security, and environmental degradation in their home districts. [/box]
[author] Tim Donovan ([email protected]) is a research associate at the US-China Business Council. USCBC is the publisher of the China Business Review. [/author]