The Chinese government is planning to impose a salary cap of around 3 million yuan (approximately US$412,460) on financial workers in state-backed brokerages, mutual fund firms, and banks. This move is part of a broader campaign to combat extravagance and hedonism in the industry, reduce wealth gaps, and align with President Xi Jinping’s initiative of common prosperity. The salary cap will be retroactive, meaning those who have earned more than the cap in the past few years may have to return the excess to their companies.
The financial industry, often perceived as elite in China, has been under scrutiny due to public discontent, particularly after a young trader’s extravagant salary was publicized on social media. The pay cap is also seen as a response to the fiscal stress faced by the government, which is seeking to diversify its revenue sources amid declining tax collections and land sales.
The financial industry’s contribution to the real economy has been questioned, and its image among the public is not favorable. Some financial companies are reportedly scrutinizing expense reimbursements as a covert form of salary payments to circumvent regulatory oversight.
Chinese President Xi Jinping aims to transform the country’s financial industry into a global powerhouse. However, the sector has faced increased regulatory scrutiny in recent years as part of the Communist Party’s anti-corruption drive. Over 30 officials from the industry have been placed under investigation this year, with several high-profile cases involving senior regulators and executives.
The shrinking profitability of the financial industry, due to a three-year bear market and a slumping property market, has led to budget tightening and reduced pay increases and bonuses. The brokerage industry experienced pay cuts for the second consecutive year in 2023, with reductions at the top 10 companies ranging from 1.2% to 27%.
The outlook for the financial industry may not improve immediately, as the rebound in the yuan-denominated stock market and the housing market remains uncertain amid a patchy economic recovery. The latest data shows that China’s manufacturing industry shrank for a second consecutive month in June, indicating the need for more easing measures to revive growth.
From a public perspective, the pay cut and cap are seen as justified and reasonable, given the declining profit margins in the financial industry in recent years. The salary should return to the social average level, underscoring equality in society.
