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China’s premier unveils more measures to tackle corruption

By Reuters - Feb 24,2014 - Last updated at Feb 24,2014

BEIJING — The Chinese government will decentralise authority, be more transparent and adopt a “zero tolerance” attitude to corruption this year as it deepens its fight against graft, reported state media, citing Premier Li Keqiang.

President Xi Jinping has launched a sweeping crackdown on corruption since taking power, warning that the problem is a threat to the Communist Party’s very survival.

The latest measures were laid out in a speech by Li on February 11, in a meeting on tackling corruption, but only published by state news agency Xinhua late on Sunday.

Li criticised the over-concentration of power by the central government and urged the institution of an open government “as the most effective way to accept supervision”.

“When the government controls too much, directly intervenes in micro-economic activities, it not only influences the ability of the market to play a decisive role in the allocation of resources, it also increases transaction costs and makes it easy for corruption to breed,” Li said.    

In 2013, the government recouped 400 billion yuan ($65.67 billion) during its investigations into corruption, Li pointed out. More than 40,000 officials received disciplinary violations and 10,000 people have been fired, he indicated. 

According to Li, the government will have a “zero tolerance” approach to “corrupt elements” within the government.

“Regardless of who is involved, they must be investigated to the end, they must not be tolerated,” Li stressed.

Li’s speech comes as the investigation into China’s powerful ex-domestic security chief, Zhou Yongkang, has been gaining traction, with a number of close allies coming under scrutiny.  

Zhou was a member of the party’s Politburo Standing Committee — the apex of power — and held the immensely powerful post of security tsar until he retired in 2012. The government has yet to officially announce an investigation into him.    

Li said the government would open its budget and all its accounts further and urged top cadres to “strengthen constraints on their relatives and staff”.

Though the government has professed greater transparency in combating corruption, it has detained dozens of activists who have urged officials to disclose their assets, last month jailing one of those people, the prominent dissident Xu Zhiyong. 

The party has also shown no sign of wanting to set up an independent body to fight corruption, insisting that its internal mechanisms are sufficient. 

Separately, wealthy Chinese are likely to buy fewer luxury goods again this year after the steepest cut-back on spending in at least five years, changing the game for high-end retailers like Louis Vuitton which have staked their growth on China.

Overall spending by wealthy Chinese fell by 15 per cent in 2013, the third consecutive year of decline, according to a survey by the Hurun Report. Spending on gifts in particular also declined by a quarter.

The drop coincides with a government crackdown on corruption and gifting, as well as an a growing penchant for travelling and shopping overseas to circumvent Chinese consumption taxes on luxury goods as high as 40 per cent.

The shrinking ranks of wealthy residents in China has also reduced luxury spending. One in three so-called high net worth individuals have already left, or are planning to leave, the country, the report showed, mostly to seek better opportunities for their children’s education.

Chinese are the top consumers of luxury goods globally. A slowdown in their spending, or a change in shopping habits, would hurt high-end retailers already struggling with a weaker Chinese economy and a more sophisticated clientele that has moved away from logo-branded goods.

Luxury group Richemont, the maker of high-end IWC watches and Cartier jewellery, reported last month slower-than-expected sales growth in the third quarter, largely due to weaker Asian demand. 

LVMH, the world’s biggest luxury goods group, has also seen sales growth slow last year as Chinese demand cooled, prompting the company, and brands from rival Kering SA to offer goods with more discreet logos and in expensive materials.

“In terms of traditional luxury — leathers, accessories, watches — this year is going to be flat if not a little bit down,” Hurun Report founder and chief researcher Rupert Hoogewerf told Reuters.

“For luxuries like tea, healthcare, even education, we are still looking at a booming market,” he said.  

The crackdown on conspicuous spending, which began in 2012, is part of a vow made by Jinping to be tougher on graft. He has focused in particular on gifts made to government officials often in exchange for preferential treatment or contracts.

As a result, many wealthy Chinese now buy luxury goods for themselves, rather than as gifts, Hoogewerf indicated.

Products by Hermes, Chanel, LVMH’s Louis Vuitton brand, Apple Inc. and Gucci remained among the most sought-after brands for gifting, the survey showed.

Less popular were Bulgari — another LVMH brand — Salvatore Ferragamo, Tiffany and Co. and the fiery baijiu liquor made by Chinese firm Kweichow Moutai Co. Ltd., once the top tipple of Communist Party officials.

Affluent Chinese often shop online for the best price globally. They have also become more confident about their fashion choices, mixing high-street clothing and accessories with branded goods.

“There is a much savvier consumer out there,” Hoogewerf said. “There will be more purchasing done overseas than in China. For a brand that’s global it’s fine.”

Over two-thirds of luxury spending by mainland Chinese was overseas in 2013, a factor that contributed to the United States overtaking China as the world’s fastest growing luxury market, according to a study by consultancy firm Bain & company released in December.

China’s superrich are also avid collectors — 70 per cent of wealthy Chinese rank collecting as a hobby — but what they are coveting is changing.

Ancient calligraphy last year surpassed luxury watches as the most-collected, knocking watches out of the No. 1 spot for the first time in five years, the Hurun report showed, which could mean revenue losses for top watch makers but a boon for auctioneers.

Patek Philippe remained the most popular watch brand for collectors for the seventh year running while Christie’s was the top ranked foreign auction house, the report showed.

Besides spending less at home, more rich Chinese are leaving the country. The number of wealthy Chinese who have emigrated or are planning to do so rose to 64 per cent from 60 per cent in the previous year, the survey pointed out.

Most of those leaving, or planning to, are looking for permanent residency overseas — the United States, Europe and Canada are top picks. Very few want to give up their nationality, perhaps because their outlook for China is improving.

The report showed millionaires’ confidence in China’s economy rose for the first time in five years but those who felt “extremely confident” still accounted for only 31 per cent of those surveyed.

The survey’s results are based on responses from 393 Chinese millionaires, or those with personal wealth of at least 10 million yuan ($1.65 million). The Hurun Research Institute has conducted the survey for the past 10 years.

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