More industries, ranging from high-end restaurants to luxury retailers, are feeling the pinch from the government campaign against corruption

It's been a sluggish holiday season for Panda Fireworks Co Ltd, one of the leading fireworks producers in China.

"This year, there's been a big change in sales to corporate and institutional customers," says Cheng Peng, the company's marketing director.

Many of those customers are still buying fireworks to celebrate the Lunar New Year, or Spring Festival, which begins on Jan 31, but sales are down "dramatically" from last year.

Cheng says that some event organizers who formerly used fireworks to liven up their events have cut orders because there's been a decline in events and conferences since early 2013.

"Chinese fireworks manufacturers have been having a hard time recently," says Zhong Ziqi, director of the China Fireworks and Firecrackers Association.

Not all of the fireworks industry's challenges are new. Sales began to slump in 2012, as smog triggered bans on fireworks in many cities, says Zhong, who is also president of Dancing Fireworks.

Many cities are still cutting the number of licenses for fireworks distribution and sales, and, in many cases, vendors are abandoning the industry. In Beijing, only 747 retailers applied for the license this year, about 500 fewer than last year, according to the Beijing Administration of Work Safety.

In Beijing, the number of fireworks retailers may fall by one-third this year. The decline could be 50 percent in other cities, says a business source who declined to be identified.

The fireworks industry is pursuing several strategies to cope. Some companies are turning to villages and smaller towns, says Zhong. Manufacturers also need to invest heavily in environmentally friendly, safer products to reverse the current decline, he adds.

The sector is just one of those industries that's been affected by the government's anti-corruption and austerity campaigns. Expensive restaurants, luxury retailers, conference venues and five-star hotels have also been hit.

Now, with China's biggest holiday just around the corner, companies that print cards and calendars, distill liquor and offer gift items are feeling the pinch.

The Commission for Discipline Inspection of the Central Committee of the Communist Party of China, the top anti-corruption body, issued a statement on Nov 21, forbidding the use of public funds for greeting cards, gifts or fireworks.

Business is at a near-standstill for greeting card and calendar producers, which should be experiencing boom times. As the government's policies have taken effect, many printers that depend on large orders from public organizations or government departments have seen their business dry up.

"I did not get any greeting card or calendar orders from state-owned companies this season," says a manager surnamed Liu at a printing house based in Hebei province.

Liu's company has two offices in Beijing. Most of his clients are enterprises in the capital city. To offset the losses from the greeting card business, the printer has turned to making photo albums and brochures, he says.

"We're trying our best to change our business model since the government released regulations to restrict spending on this sector with public funds," he adds.

Recession

The recession is also visible in Yiwu, Zhejiang province, which is the largest distribution center for calendars and cards in the province.

The city has about 200 enterprises making calendars, which have already lost a total of 1 million yuan ($164,000, 120,000 euros) as a result of the new regulations, according to the city's cultural gifts association, Xinhua News Agency reported.

Jin Jingxi, head of the association, told the news agency that the market for calendars and greeting cards has been shrinking for some time. Government departments and state-owned enterprises were formerly the main clients, Jin added.

The changes are pushing producers to transform. "The orders from private and foreign companies are getting more important for us," says the owner of a printing company in Xi'an, Shaanxi province, who declines to be identified.

He says his factory even started to accept small orders from individuals.

Some customers have said that forbidding the exchange of cards and calendars, which don't seem to cost all that much, might be going too far.

Zhang Lin, an office worker in Beijing, says that in previous years, she usually received several calendars from friends and clients.

None came this year. Although she says she has felt some inconvenience, she also admits that some of the calendars were never used.

It was hugely wasteful to print so many greeting cards and calendars at public expense, some experts say. And the costs aren't as low as some might think.

The paper used for greeting cards and calendars is of high, so the cost of a small card can be as much as several dozen yuan.

Just one post office in a small county was spending 400,000 yuan to 500,000 yuan in public funds on greeting cards annually, because it ordered "thousands of cards" a year, says Gao Bo, deputy secretary-general of the Anti-Corruption Studies Center at the Chinese Academy of Social Sciences.

E-cards are becoming more popular as a way to cut costs. Kevin Zhang, a manager at a public relations company, was busy sending e-cards to clients and friends during the last week of 2013.

Giving gifts

In the past, some of his clients required his team to buy and mail many greeting cards on their behalf. Zhang says all those clients turned to e-cards this season.

There's also a huge variety of e-card designs, which some clients actually prefer, Zhang adds.

Once a major choice for gift-giving, the high-end tea market has also experienced a slowdown over the past year.

Again, it's a case of the government drive to cut spending, says Wang Qing, executive vice-chairman of the China Tea Marketing Association.

High-end tea can cost more than 1,000 yuan per kilogram. In some cases, the price can be 10,000 yuan per kg. "High-end tea sales volume dropped 15 percent in 2013," Wang says.

"Sales of high-end tea last year fell a bit instead of showing growth, which is definitely the consequence of the government's new policy," says a tea store owner who only gave the surname Zhang.

She has run a pu'er tea business in Maliandao, one of Beijing's largest tea markets, for five years.

Zhang says that some of her regular customers, who usually bought high-end tea for gifts, are now failing to appear.

Still, she's in favour of the cost-cutting policy, which she says would push the industry to rely more on the general public, instead of just those with higher spending capacity.

Compared with high-end tea, the ordinary tea market witnessed growth last year.

"The sales volume of ordinary tea rose 10 percent to 15 percent year-on-year in 2013," says Wang.

The government's policy has also pushed up the price of ordinary tea while causing higher-end prices to decline.

The output value of ordinary tea rose 20.7 percent in 2013 to 31.5 billion yuan, while that of high-end tea was up just 9.6 percent to 79.1 billion yuan, according to a report from the tea association that cited Feng Huaisong, an official from the Ministry of Agriculture.

"I think the effect on the national tea market from the government's policy is beneficial for the whole industry," says Wang.

It encourages an adjustment in the industry structure, Wang says. It also discourages the practice of excessive packaging for tea products, which is healthy for the whole market, says Wang.

Liquor sales drain

The high-end liquor market dived in 2013, with prices almost halved and sales reduced greatly.

Liu Yueyue, executive manager of a leading liquor group, says their top liquor, priced at 1,880 yuan, now is available at the market price of 900 yuan.

"The better the quality, the larger reduction in the price," she says.

The government austerity campaign had also affected the prices of lower and middle-end liquor products, she says. "Our best seller now is priced at 300 yuan," she says.

The impact is being felt throughout the industry. The inventories of 14 listed enterprises involved in the white spirits (baijiu) industry surged 23.6 percent to 35.6 billion yuan in the third quarter.

Meanwhile, their revenue fell 12.25 percent to 5.72 billion yuan and net profit slid 50.9 percent to 8.44 trillion yuan.

Zhao Ping, deputy director of the department of consumer economics at the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce, says that excess production and high prices were behind the sliding performance.

But top-quality liquor is still selling.

Liu, who is in charge of marketing high-end liquor to collectors, says that private buyers continue to purchase the company's best bottles because the price has fallen

"Liquor quality isn't affected by age. It only gets better. There are many people who consider now a good time to collect," she says.

For industry newcomers, the downturn of the liquor industry means opportunities.

Beverage tycoon Zong Qinghou recently announced a five-year, 5 billion yuan plan to diversify his beverage empire by collaborating with liquor producers in the hometown of the country's most famous liquor brand, Moutai.

His Hangzhou Wahaha Group Co Ltd will work with Jinjiang Liquor Co Ltd in Moutai county, Guizhou province, by integrating local small and medium-sized distillers to develop a new brand.

Zong said: "The liquor business has been greatly affected by policies recently.

"But the culture of drinking liquor is deeply rooted in China, and people's spending on liquor won't decline."

Liu agrees, although she says the industry will remain in recession over the next three years. During that time, it will consolidate, upgrade and eliminate bubbles.

"Middle and lower-end products will get priority in our investment, while high-end products will be retained for branding purposes," she says.

Contact the writers at wangwen@chinadaily.com.cn, wangzhuoqiong@chinadaily.com.cn and huangying@chinadaily.com.cn

A salesman waits for customers at a fireworks retail outlet in Beijing's Chaoyang district on Jan 25. Wang Jing / China Daily

(China Daily European Weekly 01/31/2014 page14)