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Dark side of the mooncakes: China's war of graft hits high-end pastries

Feshly-baked mooncakes pass along a conveyor belt at a mooncakes factory in Shanghai September 12, 2013. REUTERS/Aly Song
Feshly-baked mooncakes pass along a conveyor belt at a mooncakes factory in Shanghai September 12, 2013. REUTERS/Aly Song

By Megha Rajagopalan

BEIJING (Reuters) - Gold-encrusted mooncakes stuffed with shark's fin are out of favour ahead of this week's mid-autumn festival in China after a crackdown on corruption killed off demand for such lavish pastries - long used as a way to bribe officials.

With more calories than a Big Mac, mooncakes are given as gifts to family, friends and employees during China's Mid-Autumn Festival, which falls on September 19 this year.

In recent years lavish varieties have popped up with jewellery-box style packaging, allowing cash, liquor or other goodies to be hidden in with the pastries.

But an anti-corruption drive by President Xi Jinping has left the pricier treats languishing on the shelves, shopkeepers and analysts said, even as sales of more traditional lotus seed- and sesame paste-stuffed varieties were unhurt.

"What has taken a deep dive is the high-end mooncakes more typically associated with corruption," said Shaun Rein, managing director of China Market Research Group.

The gilded age of mooncakes was last year, when pastries stuffed with gold flakes, shark's fin and abalone made headlines. In rural Shanxi province, gold-filled variations sold for more than $1,000, local newspapers reported.

Mid-sized China Merchants Bank Co Ltd <600036.SS> <3968.HK> marketed mooncakes made of solid gold and silver, state media said.

A spokesperson at the bank's headquarters in Shenzhen could not be reached for comment but a manager at a branch in Beijing said she was not aware of any gold or silver cakes being sold this year.

"It's normal to exchange gifts but too much reciprocity has become a form of extravagance," the People's Daily, mouthpiece of the ruling Communist Party, wrote in a commentary last month about the holiday.

Excesses in past years had even prompted the government to ask officials and workers to pay income tax on mooncakes they received.

"(This year) some government officials are less willing to accept a lavish or high-priced box of mooncakes, or in some cases, any mooncakes at all," said Eric Carlson, a Beijing-based partner at law firm Covington & Burling and an anti-corruption expert.

Carlson said he had heard that some government agencies had told mailroom staff to filter out mooncake packages before delivery.

The Communist Party's Central Commission for Discipline Inspection on Friday urged people to report cases of party members and government or state-owned enterprise officials spending public funds on gifts, banquets, travel and luxury goods during the Mid-Autumn Festival and the National Day holiday, which falls in early October.

While China regularly announces anti-corruption campaigns, this one appears to have more bite than usual, although experts say only deep and difficult political reforms will make a real difference.

CONSPICUOUS CONSUMPTION

"Political developments this year have had a definite impact on sales of high-end mooncakes," said Qian Qiliang, who has run a state-owned mooncake factory in Shanghai for two decades, adding sales had fallen 20 percent.

Qian said he adjusted his production goals when he heard about the crackdown, predicting demand for pricier pastries would fall. Demand for lower-cost cakes with traditional fillings had risen by 20 percent, he said.

Luxury hotels said the most expensive mooncake sets they sell, often in lacquered or decorated boxes, were not doing well.

A spokeswoman for China World Hotel, owned by Shangri-La Group <0069.HK>, declined to discuss sales because "frankly it's not a very positive topic". She declined to give her name.

The Sofitel Wanda Hotel in Beijing, owned by Dalian Wanda Group Co Ltd and operated by Accor , said corporate customers were more likely to go for mid-range packages.

"The atmosphere is more difficult and tough for selling mooncakes this year," said Cedric Besler, the hotel's manager.

Rein said private companies were also cutting back on conspicuous mooncake consumption because they did not want to be seen as being ostentatious.

"Every day there's another executive being hauled off and put in jail," he said. "There's a fear among both officials and businessmen right now. No one wants to be caught giving bribes."

MOONCAKE COUPONS HIT TOO

The crackdown on luxury mooncakes has also hurt a blackmarket for mooncake coupons.

For convenience, workplaces often give employees coupons for expensive mooncakes in lieu of the cakes themselves. Those who dislike mooncakes sometimes sell the coupons to traders who hang out outside hotels and shopping malls.

Those who do like mooncakes buy coupons at a discount from traders. Manufacturers sometimes also buy back coupons from traders in large batches.

"Most mooncakes are God awful," Rein said. "People are scared of eating them because everyone knows how bad they are, and they could be years old if people keep re-gifting them."

A Shanghai based-coupon trader surnamed Xiong, who has been working the sidewalk opposite a Shanghai branch of the Hang Fa Lau dessert shop for a decade, said the windfall he counts on had declined from up to 2,000 yuan ($330) a day to just a few hundred yuan.

"There's nothing I can do," said Xiong, who spends the rest of the year hawking cigarettes.

Another trader, surnamed Pan, said profits were down 60 percent from a year earlier.

"When Xi says something like this, the people he hurts are the ordinary folk," Xiong said. ($1 = 6.1188 Chinese yuan)

(Additional reporting by the Shanghai newsroom and Reuters Television. Editing by Dean Yates)

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