Is China showing its true colours?

I’ve maintained for some years now that George Orwell’s 1984 and Animal Farm should be required reading for every schoolchild.

Moreover, before anyone enters politics, even at the lowliest parish council level, they should be made to quote great swathes from either tome and explain what the passages mean. It would be a rather crude way of reminding folk harbouring political ambition of what they must not do should they attain power, however minor their eventual role.

Funnily enough, the thought occurred again today after China’s Orwellian-sounding media watchdog, the State Administration of Radio, Film and Television (you couldn’t make it up, could you?) announced that it was banning commercials for luxury and other expensive products because they promote, “incorrect values and create a bad social ethos”.

It reminded me of Winston Smith’s acquisition of the writing book he bought at a “frowzy little junk shop in a slummy quarter of town” even though “Party members were supposed not to go into ordinary shops” lest they be accused of “dealing on the free market”. Notwithstanding the fact that in Orwell’s 1984, visiting such establishments was the only way in which basics, including shoelaces and razor blades could be bought.

One assumes that ‘correct values’ referred to by SARFT are those laid down by China’s rulers and ultimately, therefore, the Communist Party. Yet from personal observation, it seems to me that the characteristic spirit and beliefs of most Chinese people, aka their collective ethos, is not exactly anti-luxury goods. Far from it.

Nevertheless, China’s sinister-sounding watchdog has declared an end to the cheerful television and radio commercials which apparently encourage people to give expensive items such as luxury handbags as gifts. I have to say, my wife has been encouraging me to buy her a luxury handbag for more than two decades, but I’ve managed to resist the temptation so far. I never knew the Chinese were so weak-willed.

Perhaps the new anti-luxury goods rules to which advertising agencies must adhere will rectify matters, although such prohibition may, in fact, reduce supply while leaving demand undimmed, pushing the price of goods higher and making them even more unattainable and, therefore, precious. This may not have occurred to the person from Zhejiang Satellite Television’s ad department who confirmed that, “unqualified advertisements will be stopped from being broadcast until they are modified".

This rather menacing development has not done any favours for shares in luxury goods manufacturers, particularly Burberry, which watched aghast as its share price fell by almost 6% on the news. The company has 68 stores in 35 cities across mainland China and is at the forefront of the country’s buoyant (up until today) luxury goods industry. Indeed, China accounts for almost 40% of retail sales across Burberry’s Asia Pacific division.

But it wasn’t just Burberry that felt the impact of China’s ominous Orwellian warning. Shares in French luxury brand LVMH and US jewellery firm Tiffany also slipped on the news.

It’s a worrying development which reveals the power the state still wields across the world’s most populous nation – and we thought things were changing.

Until today, perhaps the two greatest aspects of China’s emergence as a global economic superpower have been the relaxation of rules which previously isolated capitalism and the simultaneous creation of an aspirational middle class.

China’s middle classes are expected to number around 700 million by 2020. Anyone with a basic grasp of economic history will understand just how pivotal such a group is to a nation’s longer-term economic success. They’re not only hard working, but they spend their surplus money on education, health and products manufactured either indigenously or imported from abroad.

Perhaps that’s China’s real concern: there are far too many imported Burberry handbags flooding Beijing’s streets. My wife would love it, but this is a backward step for China and for foreign companies (and their shareholders) planning to sell to its burgeoning middle classes. No-one will be out on the boulevards of Shanghai protesting because they’re unable to get hold of Tiffany’s latest diamond bracelet, but where does SARFT draw the line?

Readers of Orwell and investors with shares in companies selling into China will appreciate that today’s announcement could be the thin end of a particularly large wedge.     

posted on 08 February 2013 18:19 byPJS