Arts, culture & society | East Asia

14 April 2016

Beijing wants a consumer-driven economy, but it does not want this new economy to undermine state authority by appearing corrupt, writes Robert Potter.

For the last decade, one of China’s fastest growing sectors was luxury goods. Today, there are even finishing schools that  teach you how to pronounce the names of luxury brands. However, current statistics point to the end of that growth trend.

President Xi Jinping is cracking down on conspicuous consumption by members of his government, party bosses, and chiefs of staff. Over the past 12 months, more than 300,000 party officials were subjected to punishment as part of an ongoing anti-corruption campaign. Many now worry about being purged, as corruption  and wealth converge in China. While luxury goods are seen as aspirational, they are also perceived as a mark of crookedness. Some officials are urging President Xi to be more discerning.

In China corruption is more than a matter of law and order — it also represents government legitimacy. However, in a hierarchical and authoritarian state, corruption cannot be viewed as structural. This makes discussing corruption, let alone tackling it, difficult. Democratic observers can link corruption to institutions and political views without imperilling the stability of the state. China, however, discusses the subject through a moral lens.

Corruption is seen as a moral failing, confessions are about personal values and the state is never implicated, while it casts itself as the enforcer of a more middle class ethic. As such, even complaints about how corruption should be dealt with encourages finding individual, rather than structural, causes.  Where does this leave the rich? Well, they are a little less willing to spend money on overtly expensive things.

There is an alternative view: Chinese luxury goods spending was also seen as a sign of a developing consumer market, something the Chinese Government has been pushing for. China can’t just be an exporting country. To continue to grow, it needs to develop as a market-driven society, and this means moving from export-driven infrastructure and factories, towards domestic consumption. Beijing wants a consumer-driven economy, but it does not want this new economy to undermine state authority by appearing corrupt.

The crackdown is evidence of a new order, based on respecting authority and austere morality. A new, confident elite class strutting the streets of Beijing in Dior could be a fundamental threat to central authority, even if it emerged from within the party itself, as it is difficult to reconcile with the official salaries of public officials. The elite, however, have not stopped spending, they have been reaching for passports and shopping overseas.

The rich in China have started buying property overseas. If the government comes after you, it can take your Louis Vuitton but it can’t take the rent from your other house in Sydney. The groundwork for an émigré economy is emerging. The French aristocrats didn’t have time to offshore their assets before the mob dragged them to the guillotine, but the wealthy of China are getting a head start and hedging their bets. Even President Xi’s family appear to be storing money overseas, as do at least three of the seven people in the Politburo Standing Committee. Mossack Fonesca, the firm at the core of the of the Panama Papers leak has more offices in China than any other country. This sits at odds with China’s anticorruption efforts to track down money held offshore in tax havens and that held by leader’s families.

While Beijing is busy trying to craft a consumer economy, the rich and powerful are buying parachutes. President Xi might want the rich to be the cornerstone investors in a new economic model that employs locals to sell locally made goods to a middle class that can afford them. However, the wealthy want an insurance policy against the state cracking down on them.

Xi is trying to move China towards a consumer economy while attempting to restrain corruption, while previous governments seem to have used that same corruption as a systemic buy-in. You could get rich in China, fast, if you played ball. Social mobility was based on collaboration with the party. To the outsider, corruption seemed an inevitable component of one-party rule. Money, however, has a power of its own, and the wealth that was generated might become a threat to the central authority of the party.

There is no indication from the present leadership as to how far or how deep the current crackdown will go. They seem to be making examples of people from the highest places, to show they are in charge and that they maintain the ‘Mandate of Heaven’. Conservatives might see this as justice, but the wealthy are seeing it as a threat.

The crackdown is also largely selective; it is hard to imagine President Xi or his staff in handcuffs for their ivory smuggling. It’s also unstable ground for investor confidence, as people generally don’t like to put their money into ventures that might see their cash taken from them.

By continuing with a crackdown that is so non-discerning, President Xi seems to have chosen a variable that potentially undermines his economic policies.  And the decline of luxury spending in China could well be a leading indicator of a lack of faith in China’s domestic political economy.

In a remarkable rags to riches tale, talk about a case of the Emperor’s new clothes.

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Potter, R. (2016). Conspicuous consumption and corruption in China - Policy Forum. [online] Policy Forum. Available at: