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Are anti-corruption campaigns causing China's economy to slow?

Some businesses are hurting as Chinese officials spend less on luxuries.

Shark fins 04 151Enlarge
A customer talks to a shopkeeper in a store selling shark fins in Hong Kong on September 5, 2012. (Philippe Lopez/AFP/Getty Images)

HONG KONG China's economy delivered a surprise this week, posting a first-quarter GDP growth rate of  7.7 percent year over year. That's lower than economists were expecting, and it underscores the fragility of China's economic recovery from the doldrums of 2012. 

While many analysts point to weak industrial production as a cause of the slowdown, some observers have an intriguing theory about what may be exacerbating China's economic woe: the anti-corruption campaigns of President Xi Jinping.

Since the end of last year, Xi has spearheaded a drive to curb officials' notoriously lavish dinners and high-end gift-giving. At a Party meeting in December, he called for new regulations that require cadres to cut back on liquor, flowers and extravagant banquets. Some provinces even banned the use of red carpets to greet visiting officials.

The tough restrictions were designed to help rebuild trust in the Party, which the public has increasingly come to view as self-enriching and corrupt.

Yet as a result of these measures, many restaurants, luxury retailers and liquor sellers in Chinese cities have taken a surprising hit. Since the regulations were introduced, sales at large restaurants in China have tumbled for the first time in over 30 years, according to Bloomberg News.

That's bad news for parts of China's economy — but good news for some of the rare animals eaten as expensive delicacies at Chinese banquets. During this year's holiday banquet season, shark-fin sales fell 70 percent, a government spokesman said in February.

More from GlobalPost: In Asia, tide turns against shark-fin soup

"Abalone, baby birds, sharks, big prawns, sea cucumbers and geoduck clams are just some of the creatures who can breathe easier, for a bit at least," says Bill Bishop, a commentator in Beijing and author of the influential Sinocism newsletter. "But [food and beverage] businesses should expect more pain."

All this happens at a time when China's economy is trying to rebalance toward a consumer-driven model. For over two decades, China's economy has depended on foreign exports and investments in things like highways, airports and high-speed rail to spur its screaming double-digit growth. Many economists believe that that model has reached the end of its effectiveness, and needs to shift toward more domestic sources of strength.

But as Michael Pettis, professor of finance at Peking University, points out, for China's new leaders that transformation is easier said than done.

"Rebalancing has very difficult political implications," he writes. More than ever I am convinced that if China is to rebalance its economy towards a more sustainable growth model — and rebalance it must if it is to avoid a financial crisis — its GDP growth rate will drop sharply with its average annual growth over the next decade unlikely to exceed 3-4 percent."

http://www.globalpost.com/dispatch/news/regions/asia-pacific/china/130415/anti-corruption-slowing-economy

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