Amid the ongoing economic downturn in China, many banks and securities companies have been reducing salaries for their employees and even requesting them to return part of their wages. Reports suggest that large fund managers in China are not only limiting employee compensation but also reclaiming amounts exceeding salary caps from the previous year. Experts have pointed out that this approach is like “administering the wrong medicine”, with various negative side effects. The recent motivation of the Chinese Communist Party (CCP) to crack down on high salaries in the financial sector has also raised concerns.
According to Reuters on July 23rd, citing sources, large fund managers in China are implementing restrictions on employee compensation and collecting any excess amounts as part of what is reportedly the first such measure to hit the industry under the government’s tightening campaign.
It was reported that China Merchants Fund Management Co., Ltd. notified employees last month that their annual salary cap would be set at 3 million yuan (RMB), and they were asked to return any excess money from the previous year starting this month.
It is also known that Bosera Asset Management has set a salary cap of 2.9 million yuan, requiring employees to return any income exceeding this limit from the previous year, starting in June this year.
China’s state-owned enterprises China Merchants Group owns 100% of China Merchants Fund Management Co. and 49% of Bosera Asset Management. Both companies are headquartered in Shenzhen.
According to Morgan McKinley’s “2023 China Salary Guide,” the basic salaries of fund managers in China specializing in sales and investment range from 1.6 million to 6 million yuan per year. In a bullish market, top executives or high-performance fund managers in large and medium-sized funds typically earn between 10 million and hundreds of millions yuan annually, with some bonuses being paid out over several years.
In recent years, as China’s economy has slowed down and the real estate sector is facing a crisis, with local governments heavily indebted, the CCP’s Central Commission for Discipline Inspection has significantly increased efforts to clean up the traditionally high-paying financial industry. The CCDCI website released an article last year stating its aim to eliminate incorrect ideologies such as the “financial elite theory” and address hedonism.
Regarding the salary recall in the Chinese fund industry, Reuters quoted Mandy Wang, former head of Morgan Stanley’s China joint fund business, as saying that shrinking profit margins make salary adjustments a priority. However, reclaiming past salaries “undermines the spirit of contracts” and is a “wrong prescription with strong repercussions”, according to Wang.
Taiwanese financial expert Huang Shicong told Dajiyuan that the financial industry in China has developed very rapidly over the past decade, especially in the fund sector where high-paying jobs are common. There may have been overpaid salaries or bonuses in the past. But now that the economy is struggling, many banks are also pursuing employees to return wages or bonuses, a move that is likely to impact fund industry professionals.
Huang also believes that this practice goes against the spirit of contracts and is seen as incredible by outsiders, but it is happening in China.
“When the salary has been paid to you, most people have already spent it. Now you want to reclaim the income from the past few years, which is not feasible in the Western world unless such clauses were included in the initial employment contract.”
Huang believes that reclaiming salaries will have long-term repercussions, making many people reconsider working in China, as they may start thinking that the money they earn now may not actually be theirs and could be reclaimed at any time. Some wealthy individuals may even accelerate their plans to leave.
China expert Wang He told Dajiyuan that the salary cuts or bonus claims in the financial industry are due to a lot of shady dealings within the financial system. For instance, he pointed out problems with fund industry’s credibility, professional competence, and ethical standards. “There are seven hundred million individual fund investors in China, and most of them have suffered losses over the years. This industry is very chaotic.”
He believes that the current crackdown on the Chinese financial industry by the authorities is mainly aimed at preventing financial crises and addressing the disorder in the financial sector, including combating the financial elite theory and regulating compensation. However, these policies by the CCP themselves do not solve the problem, as they result in significant losses for financial professionals, leading to backlash and worsening financial disorder.
“By suddenly implementing these policy adjustments, the CCP is undoubtedly facing discontent. The financial industry in China is already very chaotic, with high risks of corruption and various other issues. People will take advantage of the situation to create more chaos. So, instead of reducing, China’s financial risks have actually increased.”
Wang believes that the problems in the entire fund industry are severe, and the authorities should have made fundamental systemic changes. However, the CCP has not made efforts in this direction, focusing only on enforcing tough policies, most of which have turned out to be flawed prescriptions.
Reuters also mentioned that these actions of reclaiming money are related to the “common prosperity” campaign launched by the government in recent years.
Huang Shicong stated that such actions under the CCP’s rule make people easily associate them with the so-called “common prosperity”, or using anti-corruption efforts to serve personal gain. Overall, in China, where even work, wages, and property are not guaranteed, Xi Jinping and Li Keqiang’s repeated calls for increased foreign investments in China are met with skepticism due to the absurdity of various policies.
However, Wang He does not believe that these actions are directly linked to the “common prosperity” agenda pursued by the authorities. As the CCP operates in a black box, people do not know if the reclaimed money will go to the national treasury or how the CCP will handle it. “We have no idea where this money will end up, how the CCP will deal with it.”
He believes that reclaiming this money is like a drop in the bucket in filling the financial loopholes in China.