Hunger for results amid austerity campaign
Impact of efforts hard to assess, but benefits expected in long run, Zheng Yangpeng reports in Zhejiang.
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 email@example.com