Prostitution clampdown on Dongguan may knock 50 billion yuan off its economy

The crackdown on Dongguan's vice trade may cost city businesses, including hotels, shops and restaurants, at least 50 billion yuan (HK$63.5 billion) - or one-tenth of the local economy - analysts said.

The raids were also seen as a warning from the central government to provincial authorities to put a higher priority on tackling corruption and upholding moral standards after decades of economic development.

Video: Dongguan prostitution exposed by CCTV

Dongguan, a city of 8.2 million that sits between Shenzhen and Guangzhou, has been in the spotlight since China Central Television aired an exposé on its thriving sex industry on Sunday. Afterwards, the city mobilised more than 6,000 police to raid nearly 2,000 entertainment venues.

Guan Qingyou , a senior economist for Minsheng Securities, said in a note to investors that about 50 billion yuan - or at least 10 per cent of the city's gross domestic product - could be wiped out due to the crackdown.

"The sex industry relates directly or indirectly to many industries including hotels, restaurants, cosmetics, daily necessaries, travel and so on," Guan said.

"Fifty billion yuan is a general estimate by many research institutes of the volume of Dongguan's sex trade."

Lin Jiang, dean of the finance and taxation department at Lingnan College at Sun Yat-sen University and also a consultant to the Dongguan city government, said the figure was credible.

"It's a reasonable estimate, but I'm afraid the actual figure could be even higher," said Lin. "It will have a serious impact on the local economy. The crackdown will also hurt investors' confidence and weaken the city's long-term economic growth."

Guan also warned the crackdown on the sex industry might be echoed nationwide.

"Some people might underestimate the resolution of the leadership, but we should take seriously the impact of the Dongguan case on the larger economy. We may see the impact in national economic statistics as early as March," he said.

Other observers have expressed doubts about how far the campaign against prostitution will spread.

"With so many police officers and government officials deeply involved in the industry, I doubt the crackdown will get all of them," said Xiao Gongjun, a former researcher at Shenzhen University and a factory owner in Dongguan.