Beijing's vigorous anti-corruption campaign has an extraordinary cost, which may have a real impact on the Chinese economy

Beijing's vigorous anti-corruption campaign has an extraordinary cost, which may have a real impact on the Chinese economy. Since Beijing announced its vigorous anti-corruption campaign, there have been rumors suggesting that the anti-corruption campaign is serious...

Beijing's vigorous anti-corruption campaign has an extraordinary cost, which may have a real impact on the Chinese economy. Ever since Beijing announced its vigorous anti-corruption campaign, there have been rumors suggesting that the anti-corruption campaign is actually affecting the Chinese economy. At the beginning of the year, everyone in China couldn’t help laughing because of the news: out of fear that they would no longer be able to make money from the sign of a five-star hotel, luxury hotels actively tried to "downgrade" their hotels. No one expected this to happen. In addition to the unexpected effects, more predictable shifts have occurred. For example, luncheons and dinners are being held less and less frequently for local government officials, even for those looking to invest in the local economy. Even if it is held, it is far less extravagant and luxurious than before. Recently, a senior executive of a large state-owned enterprise took me to his company canteen for lunch. During the process, he kept emphasizing that the cost of lunch was less than 15 yuan. The Chinese government encourages strict frugality and opposes expensive meals. Almost everyone in Beijing has heard of at least one high-end restaurant closing, and there are several "victims" near our office in Sanlitun. Another industry that has been “adversely” affected by the anti-corruption campaign is the luxury goods industry, which has seen sales of products ranging from luxury watches to handbags suffer. What impact will these rumors, coupled with the uncertainty caused by the prosecution of many corrupt officials, have on the Chinese economy? Merrill Lynch recently predicted that the anti-corruption campaign will cause the Chinese economy to suffer a "loss" of more than US$100 billion in 2014, which is more than 1% of the country's total GDP last year. These are extraordinary numbers in any economy, especially China, which is struggling to meet its growth targets. In addition to the short-term impact, China's vigorous anti-corruption campaign is also affecting the outflow of domestic investment. The United States' EB-5 investment immigrant visa program is one of the barometers of this impact. Today, Chinese citizens account for more than 80% of those granted such visas, compared with only 13% 10 years ago. Relevant consulting lawyers confirmed that anti-corruption is one of the key reasons for the increase in such visa applications. Corruption in China is serious. For many companies, it, like intellectual property rights, is a key reason why foreign investors are reluctant to invest in China. Therefore, anyone doing business in China applauds Beijing's anti-corruption campaign. The tangible impact of the anti-corruption campaign on the Chinese economy and even on the outflow of investment from the country has shown how serious China is in carrying out this campaign. (Author Jack Penkovsky)