China's crackdown on lavish civil servant perks will ‘harm' the economy, experts warn

The Guardian

4 days ago

Adjacent to a municipal government building in Beijing, a normally bustling restaurant is now eerily quiet, at lunchtime most of its seats are empty.
The recent crackdown on civil servants frequenting restaurants – part of a government austerity drive intended to crack down on corruption – has likely affected business and caused liquor sales to plummet, admits one waitress who works in the opulent establishment.
In May, China released updated regulations aimed at Communist party members and civil servants, banning them from lavish banquets and other visible trappings of extravagance. But with more than 40 million people employed in the public sector, some analysts predict the new rules will probably hamper economic growth.
The policy is 'undermining the impact of other policies aimed at boosting domestic spending,' said Guo Shan, an economist at Hutong Research, an independent advisory firm based in Beijing and Shanghai. Guo predicts the drive could cause China's retail sales growth to slow by around one percentage point in the second half of the year.
The original guidelines were introduced in November 2013, a year after China's leader, Xi Jinping, came into power, with the goal of cracking down on corruption one of his signature policies. The renewed regulations outline more specific guidelines on official travel – both domestic and international – as well as protocols for hosting receptions and rules governing the use of official vehicles.
In June, local governments began figuring out how to implement the new guidance. Some civil servants in Shandong province have been reportedly ordered not to dine out in groups of more than three. Cadres in Anhui provinces have been instructed to be wary of social gatherings and to refrain from treating bosses or underlings to meals.
The renewed push hints that previous anti-corruption drives were not completely effective, while the latest effort could cast a shadow over the Chinese economy, say analysts.
'The latest anti-corruption drive will definitely harm the economy,' said Alfred Wu, a public policy expert at the National University of Singapore.
There have already been reports of penalties for civil servants who overindulge. In June, two bank employees in Anhui province had their 3,000 yuan (£310) bonuses docked for attending a lunch paid for by a client. The lunch in question was a bowl of noodles that typically costs around six yuan in the local town.
Baijiu – China's national liquor with an alcohol content comparable to vodka – has long been a popular choice among Chinese officials. But the spirit has come under renewed scrutiny after the recent deaths of three local officials in separate provinces, who died of alcohol poisoning.
Among the hardest-hit in the liquor industry is Kweichow Moutai– one of China's most iconic and valuable brands. Known for its distinctive soy sauce-aroma style of baijiu, the brand has long been associated with official banquets. Since the revised regulations were introduced in May, the company's share price has dropped nearly 9%, wiping out more than 170 billion yuan in market value by the end of July.
The intensifying restrictions reflect a broader campaign to regulate the daily lives of civil servants. As the government grows increasingly concerned about national security, controls that previously only applied to senior bureaucrats who might have access to sensitive information, such as restrictions on international travel, now seem to be spreading lower down the ranks.
An online notice circulating on Chinese social media platform Weibo – reportedly from Guangdong Province – outlines new requirements for teachers' overseas travel, even if they are travelling for their own holidays. It states that even junior personnel must now apply for permission for trips abroad, specifying that 'foreign visits are exclusively for family-related purposes; personal leisure travel is not permitted.'
In other regions, public sector workers must hand in their passports. 'I really don't understand why our county won't allow ordinary teachers to travel abroad. My parents were already at the immigration office, but they weren't allowed to apply for passports,' wrote one Weibo user, who said that their parents were teachers.
Guo, the Hutong Research economist, said that Beijing was likely willing to bear the economic pain caused by the austerity policy. 'Since this is a political drive, economic concerns are secondary. And there are still many other tools to boost the economy should Beijing decide to do so,' Guo said.