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Corrupt Chinese officials are racing to withdraw cash and sell property while they can

China Home Fair
AP Photo/ Vincent Thian
Sorry, cash only.
By Naomi Rovnick
ChinaPublished Last updated This article is more than 2 years old.

China’s incoming leader, Xi Jinping, has promised to fight “tigers and flies”, meaning high- and low-ranking bureaucrats who solicit bribes.

He may be simply trying to burnish his populist credentials, after becoming associated with heavy handed media and web censorship that upset journalists and bloggers. Nonetheless, officials involved in corruption are scared.

The South China Morning Post has reported how government officials are dumping luxury properties on the market at a discount and withdrawing foreign currency from their bank accounts. The Daily Telegraph also recently discovered that officials were racing to get money offshore by buying property abroad.

Xi has a tough job on his hands. Corruption is endemic within China. People have long been used to outrageous tales of ostensibly low-paid officials hoarding luxury cars and other baubles. Parents are encouraged to bribe education department staff so their children can win places in top schools, and after that can expect to pay for extras such as securing their child a front row classroom seat near the blackboard. Journalists—even sometimes those working in Hong Kong—are regularly offered so-called “travel money” by corporations and government departments who want them to attend a press conference and provide favorable coverage.

The threatened crackdown has been bad news for global luxury brands whose products are popular for “gifting”, which is the practice of paying non-cash bribes to officials. As we recently reported, China sales are declining at Compagnie Financière Richemont, the maker of Cartier wristwatches and Mont Blanc pens. Shares in Kweichow Moutai Co, which makes an expensive version of the baijiu liquor that Chinese businesmen often give officials, have fallen 25% in the last six months.

And there are signs the anti-corruption battle is weakening China’s already oversupplied luxury real-estate market. The 21st Century Business Herald reported earlier this week (in Chinese) on a sharp downturn in home prices in Hainan Island, an upscale area featuring tropical beaches and golf course developments on China’s southern tip, which is a popular holiday bolt-hole for powerful politicians and civil servants. ”There are roadside billboards advertising discounted properties everywhere,” the report said.

Tellingly, one property developer also bemoaned that Hainan now lacks a large crowd of on-the-spot, cash buyers. (Corrupt officials tend to buy real estate outside of the banking system to avoid their transactions being traced.) “In late 2009 to early 2010, people would come carrying their pocketbook, and just buy property,” the developer said. That may not happen again for a while.

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