Chinese financiers’ pay cut could cut too deep

China Renaissance Holdings

20/04/2023 03:24

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Pete Sweeney
       HONG KONG, April 20 (Reuters Breakingviews) - Chinese
financier pay is getting slashed as President Xi Jinping pulls
down high incomes in the name of “common prosperity” and clamps
down on corruption. As elsewhere in the world, few sympathise
with flashy earners; senior investment bankers in China can earn
up to $1.5 million a year compared to an average urban wage
around $15,000. But the private sector could take a hit if the
campaign against the industry goes too far. 
    China International Capital Corp (CICC)  3908.HK , the
country’s third-largest brokerage by market value, is slashing
bonuses by 40%, Reuters reported in April; most financial
regulators have seen similar cuts as part of a bureaucratic
reshuffle earlier this year. 
    Economic ructions play a part – aggregate investment banking
fees declined 30% in 2022, per Dealogic, and are looking slim
this year too - but the profession is becoming more perilous as
well as less lucrative. Discipline inspectors are dragging off
executives at state banks and insurers, and put a deputy central
bank governor under investigation in November. Star investment
banker Bao Fan of China Renaissance  1911.HK  vanished earlier
this year to assist authorities with their enquiries. 
    The timing of the crackdown seems odd. Beijing launched a
deleveraging campaign around 2017 in response to destabilising
financial speculation. Side effects included last year’s brutal
real estate crash, and a clean-up of the wealth management
industry also inadvertently drained funds out of the corporate
bond market. But on balance the speculators were tamed. Going
further and frightening financiers, as Xi is doing, may make it
harder to resolve other problems. 
    The central bank, for example, wants privately-owned
non-banks to help resolve the stack of debt inside local
government finance vehicles, which Goldman Sachs reckons owe
almost $9 trillion, or half of China’s GDP, much of which is
underperforming. State banks and asset managers can’t deal with
that by themselves. 
    Beijing also needs to support non-government companies
because they create most of the country’s jobs, but private
fixed asset investment has stopped growing as credit shifts to
state enterprises. Private equity deal value, key to supporting
innovative startups, fell 53% to $62 billion in 2022, according
to Bain & Company.  
    Officials say they want a diverse, multi-tiered financial
system that helps good companies raise the funds they need at a
market-determined price. But an industry paralysed by arrests
and demoralised by pay cuts might not be up to the task.
    Follow @petesweeneypro on Twitter
    
    CONTEXT NEWS
     Dealmakers at China International Capital Corp will see
bonuses cut by as much as 40%, Reuters reported on April 6
citing three sources familiar with the matter. 
    In February, the Central Commission for Discipline
Inspection (CCDI) said it would target “hedonistic” behaviour in
the finance sector. During the same month China Renaissance
Holdings, an investment bank, said its chairman, who had
previously gone missing, was cooperating with an official
investigation. 
    The central government has also been targeting corruption at
state banks and financial regulators. The CCDI put Fan Yifei, a
deputy governor at the People’s Bank of China, under a
corruption probe in November and removed Bank of China Communist
Party Chief Liu Liange in February. 

 (Editing by Una Galani and Thomas Shum)
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