China bans construction of government buildings for 5 years

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China has banned the construction of government offices for the next five years, ratcheting up an austerity campaign that has already taken a toll on the economy.

The State Council, China's cabinet, and the Communist party late on Tuesday said the ban, which takes immediate effect, would also apply to the expansion of existing buildings.

"We must really use our limited funds and resources for the development of the economy and the improvement of people's lives," they said.

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China's austerity campaign – unlike those in the west which have been triggered by budgetary shortfalls – is driven largely by the new leadership's determination to address what it sees as the slipping moral standards of the Communist party elite.

Xi Jinping's first move as party chief late last year was to bar lavish banquets, red-carpet receptions, wasteful travel and other trappings of corruption that have stained the public's perception of the government.

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Those measures have had a clear impact on the economy, leading to slower consumption growth in the first half of the year, and dealing a blow to luxury goods companies around the world.

Whether the latest ban has a similarly negative impact on the property market will depend on how it is interpreted by state-owned companies. Chinese corporate executives have felt pressure to comply with Mr Xi's earlier austerity policies even though government officials, not companies, were his targets.

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Beijing has previously tried to stop local governments from building massive new offices, but only with limited success. Even in poorer parts of China, cities and villages have built monolithic offices, replicas of the US Capitol building and faux-European palaces. In one notorious case, the government of the poor Yingquan district in Anhui province spent a third of its budget on a White House replica.

Under the new ban, renovations of outdated offices will be permitted, but the approval process will be extremely strict and there will be no tolerance for "luxurious decorations".

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In announcing the ban, the state council tried to anticipate the ways local governments might circumvent the rules. It said that expensive government buildings could not be built under different names such as "institutes" or "centres".

It prohibited the expansion of existing buildings under the guise of "building repairs". It also said that government and party agencies were not permitted to accept any form of corporate sponsorship or to collaborate in any other way with companies to construct buildings.

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In his first public speech as Chinese premier in March, Li Keqiang said he would ban the use of public funds to build new government offices, halls or guest houses to reduce the size of the country's enormous bureaucracy.

"It's very, very positive. Lots of the investment in buildings has only raised most costs down the road. The money can be saved and used for more productive things," said Shen Jianguang, an economist with Mizuho Securities.