The financial sector in China, which was once thriving, is currently experiencing a significant downturn in terms of salaries, prompting a range of reactions from employees and employers. This situation arises from Beijing’s objective to cultivate a more transparent and trustworthy approach to financial gains, thereby supporting the country’s economy. With widespread salary reductions impacting the financial industry, there is growing scrutiny as to whether the sacrifices are justified.
A poignant illustration of the consequences of these salary cuts is evident in Shenzhen, where a couple who previously enjoyed a substantial income from the financial sector were forced to make the difficult decision of transferring their son from an exclusive international school to a public one. The father, who previously earned a substantial 100,000 yuan (US $13,753) per month, now faces a drastic reduction in his basic monthly salary to a mere 10,000 yuan.
The significant shift in the remuneration of financial workers in China is a result of the government’s initiative to regulate the sector. Over the past decade, Beijing had encouraged the development of a Western-style financial industry, complete with generous salaries and incentives to drive performance and expand international operations. However, the tide turned when the government recognized the dangers of emulating a system that had previously led to financial crises in the West.
In 2022, the Ministry of Finance initiated a series of pay cuts by urging financial state-owned enterprises to reduce the packages for senior management. These directives aimed to redirect the focus of financial institutions towards national strategies, technology, and stable profits.
The repercussions of these salary adjustments are evident in the decreased average annual earnings at prominent financial institutions such as Citic Securities and China International Capital Corporation (CICC). Even the Hong Kong branches of mainland Chinese banks have followed suit in reviewing and reducing salaries. While these salary cuts present challenges for the financial industry, they also have the potential to divert talent and resources to the manufacturing and real economy sectors—areas considered more critical by the Chinese government.
While some experts argue that these measures may lead to a departure of talent from the finance sector to fields like technology, others caution that diminishing salaries could deter skilled professionals and depress the supply of risk capital and financial services. This, in turn, could have an adverse impact on tech start-ups and the real economy in the long run.
As China grapples with this transition in its financial sector, it faces the delicate task of balancing monetary incentives with broader national economic goals. The upcoming months will provide greater clarity on whether this path will lead to a more sustainable and equitable financial industry or whether the trade-off will prove to be too burdensome.