Beijing’s Corruption Crackdown Is a Boon for Bargain-Hunting Chinese; Loss of Government Business Has Hotels, Restaurants and Airlines Cutting Prices

Beijing’s Corruption Crackdown Is a Boon for Bargain-Hunting Chinese

Loss of Government Business Has Hotels, Restaurants and Airlines Cutting Prices


Jan. 16, 2014 10:16 a.m. ET


China’s crackdown on corruption is forcing restaurants to replace lavish banquets with parties for new babies and airlines to cut the prices for business-class seats. But the pain suffered by these businesses is a balm for frugal Chinese.

“Value-driven retail consumers now get to enjoy all those special deals not available to them before,” said Jane Sun, chief operating office for International Ltd.CTRP +2.01%

, who expects the anticorruption drive to have a positive impact on her company, the country’s largest travel-booking site.

When President Xi Jinping launched his drive a year ago, people didn’t expect much impact. Similar campaigns started by his predecessor, Hu Jintao, barely dented the Chinese traditions of gift-giving, wining and dining. But Mr. Xi seems more determined: In the first nine months of 2013, more than 108,000 officials were punished for corruption, according to the Xinhua News Agency.

This has had a chilling effect on spending for luxury goods and banquets.

The Communist Party has also formalized frugality measures. On Jan. 7, the Finance Ministry banned all government officials under the minister level from flying business class or staying in hotel suites. That followed a declaration last October by the State Council, China’s cabinet, that officials shouldn’t travel abroad unless it is absolutely necessary, and should steer away from popular tourist destinations.

Other rules announced in recent months forbid sending out New Year calendars or holiday cards, or buying fireworks, at public expense. (Hitting officials outside the wallet, one new rule also forbids smoking in public.)

“So many annual dinners have been canceled because everyone is afraid of getting caught,” said Vivian Hong, China president of Travelzoo, a travel website.

High-end hotels, airlines and restaurants are taking a hit after the Xi Jinping introduced frugality measures for government officials. Shaun Rein of China Market Research tells the WSJ’s Wei Gu how the decreasing demand will affect the hotel and travel industry.

With dining revenue at five-star hotels down 30% to 40% in the second half of 2013 from a year earlier, according to global real-estate firm Knight Frank, hotels are adapting. High-end hotels and restaurants have started offering discounts to the masses, said Ms. Hong. JC Mandarin, one of the first five-star hotels in Shanghai, last year was selling nearby office workers express $6 lunches in the same restaurant that offered a $30 buffet. (The hotel put itself up for sale late in 2013.)

Many restaurants now feature promotions for events ranging from birthday parties—including to celebrate an infant’s reaching the age of one month—to students’ postgraduation dinners for their teachers. Those occasions can be as extravagant as wedding banquets, with dozens of tables and live music.

For hotels, the luxury crackdown is being compounded by a wave of new openings and a decline in the number of foreign travelers. The total fell 3% in 2013.

Meanwhile, more Chinese tourists are vacationing abroad. Hong Kong-based Shangri-La Hotels and Resorts said its hotels outside China are experiencing higher revenue growth than those inside China.

Airlines have also become more aggressive, especially on business-class fares. On the popular Beijing-Shanghai route, it is possible to get a business-class seat for $200, 60% less than previously and no more than a full-price economy-class ticket. Business-class round-trip tickets from Beijing to Taipei can now be bought for as little as $350. Air ChinaLtd. 601111.SH -0.80% , China’s premier carrier, blamed lower average ticket prices for a 7% slip in third-quarter net profit, even as passenger-miles flown rose 10%.

While high-end restaurants and hotels are struggling, budget chains like China Lodging Group Ltd. and Home Inns & Hotels Management Inc. HMIN -0.98% could benefit by drawing more government officials as guests. Both chains reported occupancy rates above 90% in the third quarter, and they are continuing to expand. China Lodging’s third-quarter revenue was up 28% from a year earlier, mainly thanks to an extended network.

And maybe the book business will get a boost. While banquets and annual parties are out for government workers, one Shanghai official said her department used its staff entertainment budget to build a book corner. The office now hosts regular reading-club gatherings. And meetings with visiting foreign guests, formerly held in five-star hotels, have been moved to university facilities, or the public library.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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