Saturday, 14 March 2009

how the power flows...

How China is dealing with the current economic crisis is not so very innovative, and yet as the oldest and best of bureaucrats they move right along into the 21st century without missing a step. Ah yes, so very different from the West – is it?

As China's Communists gather, luxury sales soar

By David Barboza
Published: March 14, 2009

BEIJING: A week ago, a finely dressed Chinese man walked into Louis Vuitton's flagship store here trailed by a bodyguard and said he wanted to purchase a gift for a government official.
"This is for a very senior official," the man told a clerk. "I tell you, he is at the top. So what kind of handbag do you think is suitable for him?"
Sales clerks at Louis Vuitton and other luxury stores in Beijing offer an intriguing explanation for the appearance of such customers: every March, Communist Party delegates from China's 34 provinces and regions gather in the capital for a two-week congress; the one for this year ended Friday.
At the annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference, 5,000 delegates assess the nation's progress and debate public policy. But while here, they also seek to curry favor with their superiors, the nation's top leaders, often by showering them with expensive gifts: Gucci handbags, Hermès scarves, Mont Blanc pens and $30,000 Swiss watches.
The gifts (sometimes paid for by private entrepreneurs and other times with state funds) are essentially bribes or kickbacks sent from one government official to another, and they are prohibited under Chinese law, which bars officials from accepting gifts that might influence their decision-making.

But in China, experts say, bribery laws are selectively enforced, and party members in good standing are rarely investigated.
Consequently, the practice of bribing government officials with expensive goods is so widespread here that luxury-goods producers have come to count on it as an increasingly important source of revenue, though the companies are tight-lipped about it, and officials strongly deny that it happens.
China is now the world's fastest-growing luxury market with an estimated $7.6 billion in sales last year, according to Bain, a consulting firm.
And industry experts say gifts to government officials, their relatives and even mistresses make up close to 50 percent of the country's luxury sales.
"The government officials are not really buying it — they have modest incomes," says Radha Chadha, co-author of "The Cult of the Luxury Brand."
"Somebody else does the buying and gifts the stuff to them."
That is what is apparently happening in Beijing this month. Party cadres and their friends are going on shopping sprees, searching out brand names like Ferragamo, Dior and Cartier, though Chinese officials say no such activity takes place.
"Where have you heard this crazy news?" asked Jiang Hongbo, a media relations official working with delegates from Heilongjiang Province. "It is impossible there's any delegate sending gifts."
Yang Zhi, a liaison official from the far-western region of Xinjiang, was more indignant.
"Do you think it's possible we are busy sending gifts and hobnobbing with officials during such serious meetings?" he asked.
Louis Vuitton declined to comment, as did Gucci. Many other leading companies did not return phone calls.
But privately, marketing and sales executives at some of the leading brands offer a fascinating portrait of how bribery and corruption take place in China. They admit to having special accounts for government officials, their kin and mistresses, often with code names, like Dr. No and Miss K.
Usually the purchases are charged to the account or credit card of a private businessman. (Purchase of gifts for government officials by other officials is not nearly so common as their purchase by private businessmen.)
"When I first went to China, I was fascinated, because I always saw two guys going shopping," says Chadha, an expert on luxury brands in Asia. "But later I found that one is doing the shopping and the other is paying."
The game puts European luxury goods companies in a peculiar position. They are in the business of selling, but in China, they often know a little too much.
Executives have profiles of their customers' fashion tastes: government officials, for instance, favor Ermenegildo Zegna suits and Ferragamo shoes. They don't like big, noticeable logos, lest the bribe be too obvious. And they mostly covet expensive watches, which are easily stashed and sometimes traded in for big wads of cash.
No high-ranking official wants counterfeit goods. "That'd be like committing suicide," one marketing manager said of the prospect of bribing an official with a fake.
If you tell a sales clerk at a luxury store in China you're buying for a government official, they know exactly what you're looking for.
"Jewelry is a favorite for people sending gifts to government officials," said a clerk at Jimmy Choo's luxury shop in Beijing. His name is withheld to protect his job.
At a Dunhill store in Beijing, a clerk said: "These black handbags are popular with government officials because the logo is dark. It's discreet."