Restraint is the new red in China

BEIJING — Exports of elegant Swiss watches to China have plunged. Sales of Mercedes-Benz and other premium sedans are slowing. And high-end restaurants, coming off their worst Chinese New Year festival in years, are starting to change their menus to lure ordinary families.

At a Montblanc shop in downtown Beijing, sales clerks recall the days when they rang up as many as 10 of the top-selling fountain pens every day. And never mind the $1,400 price tag: The platinum-plated pen capped with a half-carat diamond was a particular favorite. Nowadays the store sells one such pen every two to three days, said a saleswoman surnamed Ren, adding sadly that her pay is commission-based.

Such is the state of living large in the world’s second-largest luxury market. Yet the cause of the downturn is not economic — it is political.

In the last few months, China’s new leader, President Xi Jinping, has been pressing a campaign to rein in the lavish ways of the nation’s political and military elite. Warning that corruption could threaten the Communist Party’s survival, Xi has waged a highly public effort to rid officialdom of ostentatious living.

Ceremonial red carpets and floral decor are out. Flying coach is in. Party cadres are being told to double up in hotel rooms.

And in what has become a particular crowd pleaser with the public, Beijing is going after those who have long abused the privileges of military license plates, which almost guarantee immunity from traffic laws and other such inconveniences.

It’s a much-debated question here whether this wide-ranging campaign is aimed at the root causes of corruption and income inequality, or only addressing the most visible symptoms. Whichever the case, Xi and his lieutenants have good reason for their frugality program.

Beijing has long maintained control in part by tacitly promising that over time everyone will benefit from the country’s new wealth. Rampant corruption and the garish displays of affluence by senior officials and their families strike at the heart of Beijing’s promise that it is working to make life better for all. Ordinary Chinese, often through microblogs and other social media, have increasingly lashed out at what they see as a privileged class of political elites.

Minxin Pei, an expert on Chinese governance at Claremont McKenna College, thinks Xi has two objectives with his anticorruption program: “To appease the Chinese public to show that he has heard their voice … [and] to tell officials throughout the system that the new leadership has absolute authority.”

Whatever the government’s purpose, the campaign has affected spending on all kinds of high-end goods and services. Some analysts blame Xi’s crackdown for China’s disappointing economic growth in the first quarter, which has brought financial pain to many workers.

The repercussions of the austerity drive aren’t just domestic. Official visits sponsored by government entities to the United States and other countries are rapidly declining, according to travel industry sources. That is sure to be felt by California, a popular destination among the Chinese.

Most purveyors of luxury goods in China are sitting tight for now, betting that the freeze will end soon.

“I still believe that gift-giving, as long as it is not conspicuous, will remain an important behavior in China,” said Pierre Coppere, chairman of distiller Pernod Ricard Asia, reassuring analysts recently after a double-digit drop in revenue from sales of Scotch whiskey during the Chinese New Year period.

Gift-giving is a way of life for many Chinese businesses and bureaucrats, as are bribes. Over the years, Communist Party officials have found plenty of ways to pocket gains from land sales, hiring and operation of businesses on the side.

In many cases, the extravagant spending comes from official entertainment funds. Even though the party’s manuals spell out standards for purchases in detailed fashion — specifying, for example, the maximum engine size that each level of government can buy for its fleet — the regulations have seldom been enforced.

Civil servants earn modest incomes — no more than $850 a month for a mid-level central government official, some state media reports say — but many have spruced up their lifestyles by traveling first class, dining at premium restaurants and holding lavish ceremonies, all on the taxpayers’ dime. Officials charged an estimated $57 billion worth of expenses on about 10 million government-issued credit cards last year, according to Emerging Asia Group, a research firm in Shanghai.

Xi has made examples of officials who have been publicly criticized, fired or prosecuted, mostly at low levels of government, for using taxpayer money on banquets and trips, for example, or keeping a public vehicle for personal use.

It’s less clear how effective he has been in going after flagrant cases of corruption in the upper ranks of power, although last week, the deputy head of China’s main economic planning agency, Liu Tienan, was dismissed amid allegations that he had colluded with a private business for personal gain.

State-run media reported that in the first quarter of the year, there were more than 3,600 prosecutions of corruption involving $87.5 million. Those numbers put Xi on pace to outdo his predecessor, Hu Jintao, who also sought to clean up the party in his first year in office, in 2003. But the quarterly report didn’t break down the cases by levels of government. Though Xi’s crusade has already gone on longer and been more sweeping than those of his predecessors, many experts think the frugality fervor won’t last. Once the campaign ends, they say, officials who are lying low will probably go back to their old ways.

Beyond that, Xi’s actions do little to address what most see as the root of the problem: a lack of public accountability.

“At the end of the day, all this is a charade,” said Pei, of Claremont McKenna.

Zhang Ming, a political scientist at People’s University in Beijing, said the key was “whether they’re willing to set some hard rules and allow independent supervision.” So far, he said, “there aren’t any signs that the government is planning to bring that kind of change.”

Other Chinese scholars are a little more hopeful, saying Xi’s campaign is pushing against an endemic political culture and that it will take time for things to change.

During nearly three decades, Lin Zhe, a professor at the Central Party School, had grown accustomed to lavish meals at official meetings, with cigarettes, wine and fruit always on the table. But at a party lunch last month, she said, everybody was served two dishes and a bowl of soup, cafeteria-style. They got little else except for a bottle of mineral water, and were instructed to take the bottle home if not finished.

When the meeting adjourned, Lin wasn’t given a sweater or some other souvenir as before, just a stack of reading material. “They told us to empty and clean our plates.”

Lin says the frugality campaign’s effect on the national economy shows how much China’s rapid growth was being fueled by a corruption bubble. Restaurants and other businesses should “improve the quality and grow by competition and development, not by relying on corruption,” she said.

The actual effect of political austerity on the Chinese economy is hard to measure. China’s catering and hotel business, for example, accounted for just 2% of the economy in 2010, the latest year for which such data are available.

At the same time, the government sector represents a huge consuming force. Roughly 10 million people hold administrative positions at nearly 400,000 central and local government units, with tens of millions more working at public schools, hospitals and state-owned enterprises.

Some officials complain that Xi’s campaign, while good for the economy in the long run, is having the opposite effect at the moment, hampering efforts to bolster domestic consumption.

What’s more, some have responded to the crackdown by taking their spending underground, with state media citing reports of lavish sauna-bath receptions held in farmyards and officials drinking premium liquor disguised in mineral water bottles.

Even merchants know how to play the game.

At a Gucci shop in Beijing recently, a saleswoman showed off a $1,500 handbag for men, boasting its Florence-made leather imprinted with the brand’s double-G logo. Asked whether it would make a good gift for someone in government, she demurred, pointing instead to another model decidedly more understated but nearly as expensive.

“I don’t know if this is suitable,” she said. “The logo is too obvious.”

don.lee@latimes.com

Tommy Yang of The Times’ Beijing bureau contributed to this report.