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Thursday, 19 June 2014
The real cost to China's businesses with government anti-corruption crackdown
Many news reports have been published about China's ongoing
crackdown on corruption (tigers and flies), but now one of the world's biggest
banks has put a price on the corruption.
The report published by the Bank of America Merrill Lynch
this week, the Chinese government's anti-graft campaign could have cost China's
economy more than $100bn this year alone.
Many of the small effects of the anti-corruption drive have
already been well documented; a slowdown in the restaurant trade and sales in
luxury goods has seen Chinese business go out of business.
The past year has seen Shanghai's
posh malls and boutique designer shops business slow to snails pace but the
BofAML report suggests that the campaign is also having a significant and
troubling macroeconomic effect.
Early last year, government bank deposits have been soaring,
by almost 30% year on year and even honest officials are now terrified of
starting new projects, for fear of being seen as corrupt that they're simply
keeping public funds in the bank.
The cost to the economy of the prohibition on government
consumption and the chill on admin spending is an estimated reduction in growth
of at least 0.6% this year but it could, the report argues, be as high as 1.5%
which gives us the figure of about $135bn of lost economic activity.
The report's authors admit their calculations are a back of
the envelope estimate of fiscal contraction, but even if they are only half
right it is an extraordinary amount of money and it highlights some of the
challenges facing China's anti-corruption crusader in chief, President Xi
Since taking office over a year ago Xi has made the cause
his goal, warning that official graft and extravagance threaten the very
survival of the ruling Communist Party.