China’s luxury-goods industry may take the first hit

Originally posted on Al Jazeera America and Al Jazeera English – Aug. 26, 2013

The corruption trial of China’s enigmatic fallen political star Bo Xilai closed Monday, and the verdict will be handed down later, state media reported. But China watchers say the nation’s leaders — and economy — may feel the impact of Beijing’s sweeping anti-graft campaign for years to come.

Corruption costs China some 10 percent of its gross domestic product (GDP), according to estimates by Shanghai-based independent economist Andy Xie Guozhong.

Xie told Al Jazeera that what he believes will be a protracted corruption campaign, which has already targeted other officials as well as international enterprises, will eventually take unnecessary weight off a flailing economy.

But in the immediate future, anti-graft measures may actually cost the nation by casting a shadow on consumerism as China struggles to rebalance its economy away from exports and investment and toward a more consumption-driven model.

“Less [in luxury goods] will be purchased as a result of the crackdown on corruption. The immediate impact is there’s a heightened consciousness amid party officials to big spending and being seen entertaining,” said Arthur T. Dong, an expert in Chinese commerce and an adjunct professor at Columbia University’s School of International and Public Affairs.

Dong noted that consumption accounts for a starkly low chunk of China’s GDP, about 35 percent.

“Normally a 50 percent figure of consumption is a nation in distress. When you get down to 35, that’s an unprecedented level,” Dong said.

And the anti-corruption campaign is expected to touch not only officials.

As the anti-corruption movement — championed by President Xi Jinping in recent months — gains momentum, there are worries among China’s ruling class as well as its business community that a “McCarthy-style witch hunt” is under way, Dong said.

“The whole of society is involved in corruption,” said George Yang Yong, a professor at the Chinese University of Hong Kong. “It’s just a matter of degrees — how deeply and to what extent. Everyone is trying to take advantage of or abuse the system for their benefit. That’s how people live,” he told Al Jazeera.

Several big names in China’s business community were alluded to during Bo’s court proceedings.

Bo’s estranged wife, Gu Kailai — who earlier received a  suspended death sentence tantamount to life in prison after she was found guilty in the death of a British business partner and family friend, Niel Heywood — said in a video testimony at Bo’s trial that Xu Ming, the eighth-richest person in China in 2005, according to Forbes, offered the family a number of bribes, including real estate and international flights.

In exchange, Bo greased the wheels for Xu’s business deals, Gu said, as in 2000, when Xu purchased the Dalian Football Club from real estate tycoon Wang Jianlin, who earlier this year was named China’s richest person.

Referring to China’s richest, Dong said, “You’re going to see a lot of them searching for plan B. If it’s no longer safe to operate in China, you’re going to see a sale of assets, and they are going to cash out, maybe try for a green card.”

There is a consensus among many China watchers that anti-corruption measures are necessary — even as some say that many in the ruling class and business community will take the fall.

“In the short term there will be some shock to the economy, but in the long run, it will be better,” said Yang.

But he said the answer to combating deeply ingrained, systemic corruption in the long term will not be what many have called Bo’s show trial.

The rule of law is “what’s going to help China and the economy, not just simply bringing down Bo Xilai and maybe other high-level government officials in an ad hoc, random way,” Yang said.

Ironically, Bo conducted his own showy anti-corruption campaign as the party chief of the southwestern city of Chongqing, with a sweep that arrested some 5,000 gangsters and crooked authorities. The music video below was made in honor of Bo’s efforts.

Years later, China is still engaged in an effort to combat corruption — Bo’s included.