China plans to tighten grip on finance industry; watchdogs face pay cuts

China’s financial watchdogs are facing massive pay cuts as Beijing overhauls the regulatory regime to further tighten the reins on the $60 trillion industry and comply with President Xi Jinping’s “common prosperity” drive. 

Under the shake-up announced on Tuesday, China will set up a new national regulator to oversee all financial sectors except the securities industry. Staff at regulators including the central bank, the foreign exchange regulator, the new authority and the securities watchdog will be paid on par with the nation’s public servants.

That means some officials at the new authority, which will absorb the China Banking and Insurance Regulatory Commission, and the securities regulator could face pay cuts of more than 50 per cent, according to people familiar with the matter, who asked not the named discussing internal information. 

Currently, China Securities Regulatory Commission and the CBIRC are among rare central government agencies that pay their staff significantly above the compensation of civil servants, said the people.

As a reference, some junior employees with the CSRC currently make about 20,000 yuan ($2,900) a month, with all benefits included, according to a person familiar with the matter. That will likely drop to below 10,000 yuan after the proposed revamp.

The possible cuts come as authorities are on high alert to guard against major economic and financial risks as Beijing struggles to bring the world’s second-largest economy back on its feet. A more than a yearlong drive to root out corruption in the financial system is also continuing unabated, with the high profile disappearance of one of China’s star tech bankers and the nation’s top anti-graft watchdog last month warning bankers to abandon their “hedonistic” lifestyles and pretensions of being the “financial elite.”

Still, the slashed compensation could run the risk of backfiring by sapping the motivation of officials on the front-line of controlling financial risks at a fragile time for the economy. Being placed in the civil service sector will also make it harder for regulators to switch jobs, since China has regulations that prevent public servants from immediately working in industries under their supervision. 

Since CSRC and CBIRC had been categorized differently from government organizations in the past, the regulators had more discretion in setting salaries and employees typically received higher pay than public servants, said Zhiwu Chen, a professor of finance at the University of Hong Kong Business School. “With this new definition for their positions, some of them may have to accept a pay cut of 50% or more. They will not be happy,” he said.

The CSRC and the CBIRC didn’t immediately respond to requests for comments. 

As part of the “common prosperity” campaign, Xi has ordered a sweeping crackdown on the private sector to rein in the “disorderly expansion of capital” over the past few years. The effort has spread into the financial sector, with employees at state-controlled lenders facing pay cuts as well and even international banks told to keep an eye on pay structures.

Beijing pledged to effectively prevent and defuse major economic and financial risks this year, according to the government work report delivered by outgoing Premier Li Keqiang on Sunday. Authorities will also make sure all parties involved assume the full responsibilities to guard against both regional and systemic financial risks, according to Li.

Overall risk in the financial system is controllable, PBOC governor Yi Gang told a press conference last week. The number of financial institutions rated as high risk has more than halved from the peak, according to the latest data from the central bank, with the total assets of highly risky institutions accounting for just 1% of the total.