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June 26, 2012

China in Trouble: Officials Are Selling Their Porsches

More signs of trouble in China. This time the news is that cash-strapped local governments are having to sell off the luxury cars assigned as perks to government officials. These cars are a badge of office throughout China’s vast bureaucracy, even in the middle ranks of government. Such perquisites have traditionally attracted considerable anger among the population. Particularly ostentatious vehicles (it’s not unknown, albeit rare, for officials to own Porsches or Maseratis) are often photographed and posted online to highlight official corruption.

That these cars are now being sold off en masse is a harbinger of economic slowdown, the Financial Times reports:

Wenzhou, a south-eastern coastal city hit hard by the cooling economy, sold 215 cars at the weekend, fetching Rmb10.6m ($1.7m). It plans to sell 1,300 vehicles – 80 per cent of the municipal fleet – by the end of the year.

Government revenues from tax and land sales in Wenzhou have been declining after years of heady growth. With the city’s risk-taking businesses struggling to pay back debts, the burden has fallen on the local government to turn things around. State media noted the auctions would directly boost the city’s coffers.

These luxury car fire sales may be a more reliable economic indicator than some of the statistics published by the government. We can be sure that local officials would hold on to their Porsches for dear life unless the revenue outlook were particularly dire. Since a large portion of local government revenue in China depends on things like land sales to real estate developers, empty coffers at the local government level are a pretty strong signal that things are not going well.

Posted in China, Quick Takes
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  • http://facingzionwards.blogspot.com/ Luke Lea

    “We can be sure that local officials would hold on to their Porsches for dear life unless the revenue outlook were particularly dire.”

    I bet you’re right.

  • An

    I wish our government officials would sell off their unnecessary assets.

    ~Los Angeles, CA

  • http://www.reticulator.com The Reticulator

    In our country, the indicator is Frederick County, Maryland. When that county starts dropping in the per-capita income rankings and the residents start selling off their palatial lake homes in other parts of the country, we’ll know that freedom is returning to the American people.

    But speaking of luxury cars as perks in authoritarian regimes, is it really likely that a Soviet diplomat in 1955 Moscow would have owned a red, white, and chrome convertible like the one at 00:51 .

    http://youtu.be/usCq0WBEDaM

    The movie doesn’t pretend to be completely true to life, but still, would a bureaucrat in a regime with an egalitarian ideology really paint a bulls-eye like that on himself?

  • http://powerandcontrol.blogspot.com/ M. Simon

    W.R. Mead,

    Here is an economic look at what is going on. Similar conclusion. They are, to use a Wm. Burroughs phrase, “packing their ermines”.

    http://classicalvalues.com/2012/06/china-bled-white/

  • http://powerandcontrol.blogspot.com/ M. Simon

    BTW have a look at a comment an expatriate made at my above link.

  • http://facingzionwards.blogspot.com/ Luke Lea

    http://tinyurl.com/8xyfhz3

    “What is China’s response to this plague of fraud in Chinese US listed stocks? They intend to make it very difficult for the Big 4 to continue to work in China ‘Big Four’ auditors brace for big changes in China. In the case of Longtop Financial, Deloites, the firms’ auditors have been unable to provide the SEC with any documentation about the collapse for fear of breaking China’s state secrecy laws.

    These frauds are extremely sophisticated and have gone undetected by the large audit firms. They are not just the result of a series of independent events undertaken by similarly dishonest business people acting alone. Rather, a recent report suggests they are part of a systemic network of agents acting inside and outside of China whose main purpose is to perpetuate investment fraud on a scale never seen before in economic history.

    One of the central players in uncovering Chinese investment fraud research is the firm Muddy Waters who recently published a white paper entitled Frauducation Part I: in this paper the author outlines how Chinese businessmen are taught and sponsored by experts, who sponsor and coach fraudsters in subjects like falsifying records, accounting, assets and the various methods needed to pull off grand frauds. When a character like John Paulson gets taken for nearly half a billion there is a lot of motivation on the criminal side to get things right.

    The fraud school’s assistance went well beyond providing document and accounting templates. The fraud school provided a network of “friendly” auditors that would help the companies get through the initial due diligence processes. The fraud school also helped companies game the due diligence process by providing the companies with contact information of suppliers and customers to give to potential investors. The suppliers and customers were frauds – the school hired them merely to play a role and answer questions according to the script. (Source: Muddy Waters)

    Fraud is central to the Chinese system, it has emerged via virulent mutation of the ancient tribute system. In the past, these tribute systems reflected an ancient form of private regulatory order. In the past there was often a limited basis for the rule of law to govern transactions. Throughout Chinese history, trade relied on systems of tribute to ensure secure business and political outcomes.

    These old systems were still essential throughout Asia up until only a few decades ago because, transacting parties could not rely on the rule of law to ensure the security of terms governing a transaction. In China this has evolved into government sponsored systemic corruption with Western motivations of greed and criminality. It infects every level of the private and public sector.”

  • http://facingzionwards.blogspot.com/ Luke Lea

    I remember reading about Fraud School in one of Peter Hessler’s books I think it was.

    At the very moment we stop capitalizing the word “west” when referring to our own civilization it is revealed that other parts of the world — China, the Middle East, Mexico — do not share the fundamental values which we mistakingly assumed were universal and that populations were the same everywhere, irrespective of marriage patterns and its bio-cultural consequences.

    We celebrate multiculturalism without knowing what other cultures are.

    Poltiical correctness is destroying the West. End political correctness now. Let’s be politically incorrect where the facts and the evidence show it is wrong.

  • http://facingzionwards.blogspot.com/ Luke Lea

    I should have written, “We assume that people are everywhere the same irrespective of marriage customs and their bio-cultural consequences.”

    What does it mean to be an educated person?