The picture shows a restaurant in a five-star hotel in Changsha, Hunan Province. Photo: IC

When Zhang Qing (pseudonym) noticed that the Taiheshun restaurant near his home in Xicheng district, Beijing, had added a sign earlier this year saying "affordable for most," he was flabbergasted.

The restaurant had always cultivated a rarefied, luxury atmosphere that made it seem out of reach of ordinary consumers.

"This was a fancy restaurant that had dozens of fancy cars from the army parked in its yard every weekend. Dishes in there are luxurious, with the average cost per person reaching at least 700 yuan ($114)," Zhang told the Global Times Monday, adding that middle-class people wouldn't visit unless it was entirely transformed.

This is exactly what the Taiheshun restaurant is trying to do and it's not alone. High-end restaurants across China are scrambling to fill revenue shortfalls after a government crackdown on officials' consumption of luxury items.

Since a government campaign, which aims to limit the consumption of luxury goods via bans on certain products, was launched at the end of 2012, luxury banquets have dwindled and so too have the restaurants who supply them.

"These bans are disastrous, causing severe reductions in income for these restaurants, leading to a wave of transformations," Bian Jiang, the deputy chief of the Chinese Cuisine Association, told the Global Times Friday, adding that this is the most chilling winter the Chinese luxury catering industry has ever experienced.

Out of the frying pan

Those hit hard by the new policies include one of Beijing's most famous draw cards. Quanjude restaurants - among the most famous purveyors of the famous Beijing roast duck - have suffered along with other Beijing restaurant icons like Xiang'eqing.

Many of these outlets have decided to dramatically lower dish prices, sometimes by up to 60 percent. However, slashing prices is proving a bitter pill for many luxury restaurants to swallow.

According to a public financial report released by the Beijing-based Xiang'eqing Group on July 12, despite taking measures like removing certain expensive items from menus, many of its restaurants are still in the red or have closed down and the group has lost 80 to 110 million yuan.

A number of factors have conspired to hamper the ability of these restaurants to adapt.

Compared with popular restaurants, the luxury ones, which mainly target government customers, are usually located in less noticeable places and avoid being high-profile. They also often provide many small dining rooms for individual groups rather than large areas. All of these factors make them more susceptible when their target market shrinks.

The pain of this transformation has already been passed further up the industry chain. In Beijing, many seafood dealers are feeling the effects as orders for certain expensive products decline in line with the closures of the restaurants selling them.

"Market sales of luxury seafood have dropped by two thirds, while the prices have fallen by a third. That has dealt a severe blow to seafood dealers," Wang Yiliang, the deputy chief of the Beijing Seafood Sale Industry Association, was cited by the Beijing Daily as saying.

Many of the seafood dealers were disappointed by the market and have, instead turned to other industries, he said.

No respite

The situation has been exacerbated by the fact that high-end restaurants have been unable to take advantage of peak times of year.

"Usually, the closer the date of the Spring Festival, the more frequent the banquets, the costs of which are usually covered by local governments of different provinces. But nearly all of them, as well as our annual celebration party, have been canceled this year in an attempt to avoid unnecessary troubles," a former official at the Ministry of Commerce, told the Global Times Thursday on condition of anonymity.

The "Eight Regulations"  and "Six bans" Party policies,  aim to improve the working style of the Communist Party of China, including advocating thrift as a way to combat corruption. It also states that publicly-funded banquets, gifts and visits are forbidden during Chinese festivals.

These banquets are often regarded as opportunities for local governments to improve relations with higher departments, as part of a set of "hidden rules" in China. These rules have created a special market for luxury restaurants but have now led to an industry crisis.

According to an industry report released by the Chinese Cuisine Association in April, the income of large scale restaurants, defined as restaurants with turnovers of at least 2 million yuan per year, reached 12.8 billion in the first two months of 2013, dropping 17.3 percent compared with corresponding period last year. In addition, the revenue of luxury restaurants saw a severe reduction, with Beijing declining 35 percent, and Shanghai over 20 percent.

"Many luxury restaurants can't tolerate these losses, so they are trying to readjust their marketing strategies and seeking opportunities through transformation," Bian said.

It's not just restaurants suffering - the Party discipline inspection commission Monday revealed eight cases of government officials splurging public funds on luxury meals. The officials either received intra-Party warnings or were removed from their posts.

Unsustainable practices

Despite the current doldrums facing luxury restaurants, many experts are still optimistic about their future.

"The prosperous luxury restaurant market contained too many bubbles caused by the use of public funds. The government bans have broken the bubbles and forced the industry back on the right track. The move will re-shuffle the game and form a market which is oriented toward average consumers," Bian said.

Other experts said that the tax rate for the Chinese catering business should be lowered to encourage development, as tax was cited as one of the reasons for a recession facing the industry since 2008, with the growth rate annually declining. There are as many as 46 categories of fees and taxes for restaurants in China, which according to comments in Xinhua from Feng Enyuan, the secretary general of the Chinese Cuisine Association, are hurting the industry. "The tax rate for the catering industry is higher than that of industrial enterprises. It should be lowered, especially now," Bian said.