Economy

A strange business

Why all the shops closed in Liaoning province

The ‘law of unintended consequences’ was a term coined by Robert K Merton in 1936. And were he alive today, Merton would have found a decent example of his theory has just played out in Liaoning province.

For the past month a so-called ‘battle against counterfeit goods’ has been waged across the province’s major cities. But the crackdown has been so sweeping that it has decimated economic activity. Whole areas of cities like Shenyang have seen shops shut en masse. Local residents have not been able to find a restaurant that’s open, or even a place to buy their instant noodles.

The crackdown began on July 7 when public security officials raided Shenyang’s busy Wuai Market, levying fines on traders selling counterfeit goods, and taking offenders to the police station.

It’s the sort of policy initiative that ought to warm the hearts of brand owners like Microsoft and Prada. But in this case, the unexpected intensity of the campaign led to even the legitimate businesses shutting their doors for fear of being fined.

Caijing Magazine spoke to a businessman in the market who had done just that. A vendor of bed linens, he told the magazine: “I heard that some merchants were fined Rmb300,000 ($47,200), so who would dare to open for business?”

Within days there was an eerie silence in the once bustling market. And the shutdown quickly spread to other parts of Shenyang, as attention switched to other commercial areas. Local bloggers were soon publishing photographs of shuttered stores in images that made Shenyang look like it was under curfew.

Shop owners were rightly spooked. The campaign – while primarily against counterfeiting – also encompassed other ‘economic crimes’, a catch-all term giving police wide latitude to levy fines. Caijing reports, for example, that eight inspectors showed up at a liquor-and-tobacco seller called Shenyang Hanzhiyuan, taking the owners to the police station “on the grounds of insufficient routine documents”. The pair were released from custody after they’d paid a Rmb3,000 fine.

Other major cities in Liaoning were soon experiencing the same crackdown. “In order to buy a broom I had to drive 10km,” says one local resident in Fushun. “Food and vegetable shopping became a problem. Even the farmers’ markets closed.”

The owner of one supermarket in the city confided: “It was rumoured that the provincial anti-counterfeiting operation was specifically looking for flaws in order to find ways to collect hefty fines. Out of panic we closed our business to wait and see what happened.”

The crackdown was the brainchild of bureaucrats in the Public Security Bureau. According to Liaoning Legal Daily, the unit’s Shenyang division was delighted when it ranked first nationwide last year for filing and solving economic crimes (cases were closed in 1,941 instances, it seems). In a March meeting this year it was decided to protect that top ranking in Shenyang, as well as improve the rankings of neighbouring cities. A new province-wide campaign against economic crimes would launch in the summer, drafting in local police too.

Give a Chinese official a target, and he’s likely to be zealous in being seen to meet his quota. That explains the thoroughness of the sweep. But no one in the Public Security Bureau seems to have foreseen the consequences of terrifying the entire business community.

This being China, when one bureaucracy steps over the line, another is soon on the scene to rectify the situation. The province’s Party officials belatedly realised that their colleagues – almost overnight – had created one of the most dysfunctional economies since the Mao era. They ordered the Public Security Bureau to drop the anti-counterfeiting campaign at once. Thus on August 6 a public notice was released saying the crackdown was over and all shops were to instructed to reopen by 3pm that day.

The threat of punitive fines lifted, shops soon resumed operations and the situation began to return to normal – for the counterfeiters and for everyone else.


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