China Tightens Up on Bankers’ Wages

Welcome to Foreign Policy’s China Brief.

The highlights this week: Executives at Chinese state banks face new pay limits, Hungarian Prime Minister Viktor Orban visits Beijing, and China’s trucking industry becomes embroiled in a cooking oil scandal.

New Pay Limits Expected in Financial Sector

China is planning an annual pay cap of 3 million yuan (about $413,000) for executives in the state-owned financial sector, which dominates banking in the country. Financiers’ pay has already fallen since the COVID-19 pandemic amid a general economic slowdown and a calamitous stock market. Rolling corruption investigations, meanwhile, have snatched up many staff, with more than 30 senior regulators or bankers arrested so far this year. Some major banks have already seen across-the-board pay cuts of 10 percent or more.

Pay inequality is a big topic on the Chinese internet—a rare strain of anger that is both contentious and ideologically acceptable to the Chinese Communist Party (CCP). President Xi Jinping has pushed the idea of “common prosperity,” which makes it difficult for censors to crack down on complaints about the country’s wildly skewed wealth distribution.

Critics say the proposed pay restrictions will drive away talent and constrain China’s ambitions to build banks that can compete globally. That has already been the case among financial regulators, where deep pay cuts last year resulted in an exodus of the best staff.

Talent could flee from state banks to nonstate firms such as hedge funds and private equity, but the picture there, too, is fairly bleak amid declining investment in China. They might also join China’s ultra-rich in leaving the country entirely.

It could also be that the pay limits will count more on paper than in practice. The 3 million yuan figure harks back to similar measures imposed by the government in 2009 on executives at state-owned firms. Pay was capped at 2.8 million yuan (equivalent to about $385,000 today) in the aftermath of the global financial crisis.

But those regulations were barely applied, and within a couple of years, executive pay commonly exceeded the cap. Officially, the 2.8 million yuan limit was never removed.

The tiny rise in the official pay cap reported last week—just 7 percent, in a country where GDP has more than tripled since 2009—suggests that the limit is either wildly low or isn’t expected to be taken seriously.

Executive compensation at Chinese firms, especially state-owned ones, is opaque, with the rewards of a powerful job often coming through backdoor methods. Regulations issued in 2010 by the China Banking Regulatory Commission state that executives’ base salaries should make up no less than 35 percent of their total compensation, but that proved no more enforceable than other limits.

The opacity of compensation at state-owned firms is part of a much wider problem. Pay for government officials is both far too low and completely untransparent.

On paper, Xi himself makes only $1,833 a month, and many officials receive around $1,000 a month—comparable to amounts earned by the very lowest end of the Chinese urban middle class. But in reality, officials are compensated generously through government benefits, including housing benefits, subsidized meals, and annual bonuses.

Then there’s the money made illicitly. One study of high-ranking officials convicted for corruption found that they earned between eight and 14 times their annual income through graft.  At the top, Xi’s family has accumulated a billion-dollar fortune—one of the most taboo subjects in Chinese reporting.

It might well be better for everyone if officials were properly and transparently compensated—as they are, for instance, in Singapore. But the CCP fears resentment against well-paid government officials. As a result, the last publicly announced pay raise was in 2015; it increased salaries by at least 31 percent for most officials but doubled or tripled the salaries of some of the lowest-ranked rural staff. The last pay raise before that was in 2006.

According to that timeline, another pay raise for officials could be expected this year or next. But local governments are going through a massive cash crunch, since the pandemic crash bought decades of accumulated debt to a crisis point. Some are struggling just to make payroll at all, and benefits have been slashed. Temporary staff are being hired for as little as $2,300 a year.

Leave a Reply

Your email address will not be published. Required fields are marked *