China’s state financial sector braces for ‘one of the toughest years’

They described the uncertainty brought by the “relentless” ideological and anti-corruption drives, and sharp pay cuts in the range of 15 to 20 per cent of their basic salaries, with annual bonuses set to be slashed by at least 30 per cent this year.

A manager at a state-owned securities firm in Shanghai said a recent ideological study session at the company was on the Red Army’s Long March.

“Probably our party secretary wants us to be mentally prepared for tougher times ahead,” he said. “State-owned financial companies aren’t an exception. They’re also part of China’s austerity drive at a time when the economy isn’t doing well, and as many civil servants get their pay cut too.”

He said pay cuts in the financial sector were in line with Xi’s “common prosperity” goal to narrow the wealth gap in China.

Beijing has vowed to put an end to extravagance among what it calls “financial elites” in the state sector, as Xi tries to push its institutions to comply with his vision.

And with tensions rising between China and the West – in particular the United States – Beijing is urging its state banks to allocate more money to areas seen as priorities for the nation, such as technology self-reliance projects and advanced manufacturing.

Beijing is also closely watching its bankers and financial regulators for any sign of collusion with foreign financial institutions on facilitating large outflows of Chinese funds.

It is also concerned about ballooning local government debt and wants lenders to exercise caution on loans, while at the same time keeping an eye on the weaker financial institutions amid a banking crisis in the US, and as it tries to revive the economy.

Beijing’s overhaul of the state financial sector is part of efforts to control risks and – in a typical move from Xi’s playbook – aimed at strengthening the party’s control over financial policymaking.

The creation of a new Central Financial Commission will be key to this goal, with 400 trillion yuan (US$55 trillion) of banking and insurance assets placed under the party’s watch. The commission was established under the Central Committee, the party’s top decision-making body.

A powerful new financial regulator has also been set up. The National Financial Regulatory Administration has replaced the China Banking and Insurance Regulatory Commission and taken on some duties of the central bank’s supervisory body as well as the securities regulator.

Ideological training has also become a priority in the overhaul. One middle manager at a leading Chinese investment bank said its top executives had been asked to return to the company’s Beijing headquarters at the end of May.

“They all had to supervise week-long study sessions for middle managers,” he said. “We studied President Xi’s original works and his instructions on the financial sector and spent hours soul-searching and writing reports on the main takeaways [from the sessions].”

He said managers had received a memo from the bank’s chairman saying the education campaign was the top priority and the sessions could not be skipped. An inspection team from the party was supervising the campaign at the bank.