BEIJING — The message is the same to China‘s civil servants, party members, employees of state-owned enterprises: show more restraint. With Chinese national debt continuing to rise, the government recently introduced new austerity rules.
The impact of these new regulations can be felt throughout the economy, but perhaps the first place to look is the catering industry that has long served the political and business elite with traditional banquets.
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The new restrictions were issued jointly by the Central Committee of the Communist Party and the State Council on May 18. One month earlier, the International Monetary Fund (IMF) had estimated China’s debt burden at 96.3% of gross domestic product, an increase of eight percent compared to the previous year.
The outlook for the coming years is also concerning, with the IMF predicting a continued sharp rise in debt since 2015. For example, the producer price index in May showed a steady decline, continuing for the 27th consecutive month, which is a strong indicator of deflation. At the same time, spending on unemployment insurance rose by 26% in the first four months of the year compared to the same period last year.
China’s leadership has made repeated attempts to slow this growing debt. But such a fundamental test of the bureaucratic system’s resilience can only be complex and challenging. The rules now in effect on thrift and the prevention of waste in party and government bodies are already a stricter version of similar measures introduced in 2013.
The new document is more ideologically driven and based on what is called Xi Jinping Thought, named after the current leader and head of the Communist Party. It provides for more detailed controls, for example on food consumption, alcohol and cigarette use during working hours, and expenditures on festivities.
Scale back on booze
Modernization through technology is also to be promoted, with flexible budgeting and more virtual meetings. Official welcoming parties at airports and train stations, extravagant decorations in party and government buildings, and inviting celebrities to events are all explicitly banned.
Simply attending a party or banquet can be considered a violation of the rules.
To ensure enforcement, stricter disciplinary mechanisms are being introduced, including inspections, patrols, and digital surveillance. This emphasis on discipline in particular underscores Xi’s determination. Citizens are also being encouraged to take part in monitoring and to report violations of the new rules.
The message is clear, and the bureaucratic system is taking it seriously. Local governments quickly published their own interpretations of the regulations. Some ambitious officials went too far, imposing overly strict bans on alcohol, cigarettes, and food for civil servants and employees of state-owned companies. Alcohol is now strictly banned from Monday to Friday, and working overtime on weekends has also been prohibited. Some authorities have even banned shared dinners outside of working hours; in some places, simply attending a party or banquet can be considered a violation of the rules.
China’s omnipresent state
Soon, the first violations were punished. Some cases were justified, but by no means all. Three young civil servants in Henan shared a bowl of cold noodles at a snack bar after working late into the night. They weren’t smoking or drinking, and corruption was not an issue — yet the city’s disciplinary commission criticized them for “ganging up.” In Anhui Province, two managers from a state-owned bank had lunch with a customer who paid for their noodles. This also triggered public criticism and a fine of 3,000 yuan — about $420 — for each.
These cases may be extreme, but the intended deterrent effect is clear. Chinese media have already labeled the new rules the “strictest prohibition.”
It is unclear whether the drafters of the new rules failed to consider their impact on Chinese consumption, which is already weak. After all, a significant number of people in China work for the government — around eight million civil servants and some 32 million employees of public institutions.
They make up a large part of the middle class, which is essential for domestic consumption, both in large cities and in rural areas. Their incomes are stable, and their health insurance and pensions are usually better than those of people in the private sector. The bans have created considerable uncertainty among this group, affecting their willingness to spend money in restaurants.
Lavish banquets are an important tool for cultivating “guanxi,” or personal networks.
Perhaps those hit hardest are the catering businesses and the segment of the restaurant industry that primarily serves government officials. Local governments are important clients for these businesses — and even more so for private contractors working on public projects.
There’s a clear reason for this: lavish banquets are an important tool for cultivating and maintaining “guanxi,” or personal networks. The aim of the tightened rules is to curb this kind of expensive entertainment and reduce overall spending on relationship-building.
Fine dining depression
Ironically, some of the catering businesses affected are themselves owned by local governments. In times of economic downturn, food service and hospitality are among the few remaining sectors that still offer stable jobs and tax revenues. For some of these businesses, the new rules are a heavy blow.
Social media has been filled with complaints from operators of mid-range and high-end hotels and restaurants. A secondhand dealer in restaurant equipment in Beijing reported an increase in inquiries about possible closures. A restaurant owner in Zhejiang said that her regular customers who work for the state no longer dare to book banquets.
In the northeastern provinces, where the economy is dominated by state-owned companies and the public sector, the outlook for fine dining is particularly bleak. Meanwhile, the state news agency Xinhua has been quick to emphasize in several articles that the alcohol ban is not a blanket prohibition but is instead intended to prevent corruption and avoid unnecessary government spending.
The austerity measures go far beyond alcohol and official banquets. The government, state-owned enterprises, and public institutions are key clients for many sectors in China, from automotive to electronics. In an economy where the state plays such a central role, the new rules are keeping many Chinese businesspeople awake at night.
