Hunger for re­sults amid aus­ter­ity cam­paign

Im­pact of ef­forts hard to as­sess, but ben­e­fits ex­pected in long run, Zheng Yangpeng re­ports in Zhe­jiang.

China Daily (Canada) - - CHINA -

The road that runs along­side Shen­ji­a­men port is packed with seafood restaurants that, along with the yachts that fill the mari­nas, dom­i­nate the view of this part of Zhoushan, an is­land city in Zhe­jiang prov­ince.

Out­side each of the glass-roofed eater­ies, women work their beats, ap­proach­ing passersby and urg­ing, al­most plead­ing, with them to come in and try the shrimp and clams.

It’s a scene that would have been unimag­in­able just two years ago, be­fore China’s new lead­er­ship launched a cam­paign to crack down on the unau­tho­rized use of pub­lic money and put an end to pub­licly funded ban­quets and red tape.

Be­fore the cam­paign, res­i­dents said, it was al­most im­pos­si­ble to find a ta­ble at the restaurants, a “must-see” spot for tourists, es­pe­cially in the evening. When dusk fell on the port, pub­licly funded ban­quets ac­counted for a large part of the restaurants’ busi­ness.

But the sweet days for restau­rant own­ers are over. In late 2012, Pres­i­dent Xi Jin­ping be­gan curb­ing ex­trav­a­gant spend­ing and dis­cour­aged overt dis­plays of wealth, with of­fi­cials banned from ac­cept­ing ex­pen­sive gifts and at­tend­ing lux­ury ban­quets.

The im­pact on the once-thriv­ing cater­ing sec­tor was al­most im­me­di­ate and was felt as keenly in Zhoushan as in other parts of the coun­try.

The high-end West Lake Spring restau­rant closed in De­cem­ber. Al­though it had op­er­ated prof­itably since open­ing in Jan­uary 2010, ev­ery­thing turned sour in late 2012.

Few reg­u­lar cus­tomers could af­ford the ex­pen­sive dishes, and when lo­cal of­fi­cials stopped din­ing there, trade died. Lo­cal me­dia re­ported that the Zhoushan branch was the first to be closed by the restau­rant chain.

The Sher­a­ton Ho­tel, the most lux­u­ri­ous in Zhoushan, stands next to the city govern­ment of­fices. But trade that once boomed there is now slug­gish.

In Fe­bru­ary, Star­wood Ho­tels & Re­sorts World­wide, which owns the ho­tel, re­ported fourth-quar­ter rev­enue of $1.51 bil­lion, be­low an­a­lysts’ es­ti­mates.

It also fore­cast weak first-quar­ter rev­enue, mainly be­cause of slow­ing Asian economies. The cen­tral govern­ment’s aus­ter­ity drive has been a ma­jor fac­tor in this slow­down.

How­ever, al­though the im­pact of the aus­ter­ity drive read­ily be­came ap­par­ent in sec­tors such as cater­ing, ho­tels, cig­a­rettes, al­co­hol, lux­ury items and flow­ers, the im­pact on the con­sumer sec­tor over­all is not as easy to as­sess. First, there are no sub­stan­tial stud­ies or govern­ment sta­tis­tics to in­di­cate how heav­ily pub­licly funded ac­tiv­i­ties ac­count for over­all con­sump­tion. Sec­ond, while some con­sump­tion in­dexes have fallen or slowed their ex­pan­sion rates, it’s dif­fi­cult to tell whether the de­cline can be at­trib­uted to the aus­ter­ity cam­paign be­cause the slow­ing pri­vate con­sumer sec­tor might also have played a role.

For ex­am­ple, ac­cord­ing to the China Cui­sine As­so­ci­a­tion, growth in China’s cater­ing in­dus­try slowed to 9 per­cent in 2013, a sharp de­cline from 13 per­cent in 2012 and 16 per­cent in 2011. The as­so­ci­a­tion said 2013 was the first year in 23 that growth had fallen be­low dou­ble dig­its.

Re­tail sales in China to­taled 2.34 tril­lion yuan ($382 bil­lion) in 2013, an in­crease of 11.5 per­cent from 2012. But while the fig­ure was slightly lower than the 12 per­cent recorded in 2012, there’s no way of know­ing if the de­cline was a di­rect re­sult of the aus­ter­ity drive.

Wu Hui, an as­so­ciate pro­fes­sor of gov­er­nance at the CPC Cen­tral Com­mit­tee Party School, said al­though pub­licly funded ex­trav­a­gance fu­eled the con­sumer sec­tor in the days be­fore the crack­down, the pros­per­ity it cre­ated was “il­lu­sory” and had to be stopped. Long-term ben­e­fits

Many Chi­nese schol­ars have ar­gued that de­spite all the pain the thrift cam­paign has im­posed on cater­ing and re­lated in­dus­tries, the cam­paign will re­sult in long-term eco­nomic ben­e­fits.

He Jianwu, an as­so­ciate re­searcher with the De­vel­op­ment Re­search Cen­ter of the State Coun­cil, said the aus­ter­ity cam­paign has helped to pull the con­sumer mar­ket back onto a “nor­mal” track. For too long, he said, an ex­cess of pub­licly funded con­sump­tion had dis­torted the con­sumer mar­ket and in­flated the prices of many prod­ucts. For ex­am­ple, the price of Moutai, a lux­ury liquor brand of­ten sup­plied at govern­ment ban­quets, has fallen by 30 per­cent com­pared with its peak, ac­cord­ing to the Min­istry of Com­merce.

“In the long run, the cam­paign will help to raise house­hold con­sump­tion,” He said, adding that the cam­paign will also help to curb the waste of re­sources. In 2012, China im­ported 80.25 mil­lion met­ric tons of grain, equiv­a­lent to 13.6 per­cent of the coun­try’s to­tal grain out­put that year. How­ever, a strik­ing amount of food was also wasted. Lower con­sump­tion will re­duce the bur­den on re­sources, al­le­vi­ate en­vi­ron­men­tal degra­da­tion, and bol­ster the coun­try’s food se­cu­rity.

He said the cam­paign will im­prove govern­ment ef­fi­ciency and re­sult in greater ben­e­fits for businesses. Af­ter all, if of­fi­cials spend less time at ban­quets, which of­ten last for hours, they will have more time to deal with busi­ness-re­lated mat­ters, such as build­ing and reg­is­tra­tion ap­pli­ca­tions. Fur­ther­more, the ban on govern­ment of­fi­cials ac­cept­ing lav­ish gifts and kick­backs means busi­ness­peo­ple can now spend less on gifts and more on in­vest­ment, less time seek­ing guanxi, or con­nec­tions, and more time fo­cus­ing on their prod­ucts.

An of­fi­cial with the Zhoushan govern­ment, who de­clined to be named, re­called the times when he drank too much at the end­less ban­quets and was scolded by his wife. Once he was so drunk that he fell asleep on the doorstep of his own home.

“In the old days, I was per­son­ally averse to the ban­quets be­cause they made me feel ill. But I had to at­tend be­cause it was un­think­able not to. Now I feel much more re­laxed. I can spend more time at my of­fice or at home,” he said.

But as the be­hav­ior of of­fi­cials be­comes more re­strained, an­other ques­tion arises re­lat­ing to in­cen­tives. The of­fi­cial ad­mit­ted that al­though he and his peers now dare not ac­cept gifts or at­tend ban­quets pro­vided by busi­ness­peo­ple, nei­ther are they in­ter­ested in of­fer­ing timely ser­vices for businesses.

“In the old days, of­fi­cials might ac­cel­er­ate the ap­proval pro­ce­dure if they re­ceived gifts from en­ter­prises, but now they dare not do that. In­stead, they strictly fol­low the pro­ce­dures, and that means it takes more time for busi­ness­peo­ple to get things done,” he said.

In re­sponse, the Zhoushan govern­ment em­ployed the un­usual mea­sure of with­hold­ing part of of­fi­cials’ salaries, say­ing that the short­fall will only be made up if the an­nual tar­get for “at­tract­ing busi­ness projects” is met. A deeper change

An­other ben­e­fit of the cam­paign, ac­cord­ing to ex­perts, is that the re­sul­tant sav­ings can now be used to boost pub­lic ex­pen­di­tures on ser­vices such as ed­u­ca­tion.

China’s bud­getary sys­tem does not spec­ify ex­actly how the money raised is used, so it’s im­pos­si­ble to cal­cu­late the ex­act amount of pub­lic rev­enue saved by the abo­li­tion of ex­trav­a­gant spend­ing which can now be used to im­prove pub­lic ser­vices such as hous­ing, ed­u­ca­tion and so­cial se­cu­rity.

How­ever, ac­cord­ing to Pre­mier Li Ke­qiang’s govern­ment work re­port on Wed­nes­day, in 2013 the an­nual ex­pen­di­ture of cen­tral Party and govern­ment de­part­ments and pub­lic in­sti­tu­tions was cut by 5 per­cent. Lo­cal govern­ment ex­pen­di­tures were also re­duced, Li said.

Econ­o­mists said that a boost in ed­u­ca­tion fund­ing is cru­cial for eco­nomic growth. In­ter­na­tional sta­tis­ti­cal anal­y­sis shows that govern­ment spend­ing on ed­u­ca­tion as a ra­tio to GDP is neg­a­tively and sig­nif­i­cantly cor­re­lated with cor­rup­tion, mean­ing the greater the level of cor­rup­tion, the less money spent on ed­u­ca­tion. Analy­ses also show that as coun­tries move up the cor­rup­tion in­dex, that is, be­comes less cor­rupt, ev­ery one­point move higher re­sults in govern­ment spend­ing on ed­u­ca­tion ris­ing by around 0.5 per­cent of GDP.

But be­yond the realms of pub­lic rev­enue and ex­pen­di­ture, more pro­found changes are also tak­ing place, ac­cord­ing to po­lit­i­cal schol­ars. One po­ten­tially deeper change the cam­paign will bring about is a re­align­ment of the re­la­tion­ship be­tween pol­i­tics and busi­ness, said Wu.

“When busi­ness­men in­vited of­fi­cials to din­ner or gave them gifts, they ex­pected some­thing in re­turn. The ‘re­turn re­sult’ was in­tan­gi­ble, but rep­re­sented a huge loss of na­tional wealth. The work of of­fi­cials should be mo­ti­vated by many things, but not by ‘rent seek­ing’,” he said.

The Party’s clear state­ment that it will go af­ter both “tigers” and “flies” could re­sult in a new, far-health­ier re­la­tion­ship be­tween pol­i­tics and busi­ness, said Wu, but he also warned that the aus­ter­ity drive is still a “top-down”, po­lit­i­cally manda­tory move­ment. The build­ing up of in­sti­tu­tions, a demo­cratic sys­tem and pub­lic en­gage­ments should be strength­ened to en­sure the an­ticor­rup­tion cam­paign is long-lived.

“What we are dis­cussing is whether or not the cam­paign will lose mo­men­tum. If it does, I fear many of the bad as­pects will re­turn,” said the of­fi­cial from Zhoushan govern­ment. Con­tact the writer at zhengyang­peng@chi­nadaily.com.cn

PANG LI / CHINA DAILY

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