victor shihChina has announced it will cut salaries of key managers at its state-owned banks. A bad idea, tells political scienist and financial analyst Victor Shih in Businessweek. An exodus of bankers would cause “a big mess”.


Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd., earned less than 2 percent of Jamie Dimon’s compensation last year while reporting twice the profit of JPMorgan Chase & Co. Instead of a reward, Jiang is poised for a pay cut.

China’s government said last month it will reduce salaries for executives at state-owned companies because “unreasonably high” incomes have become a source of public discontent. The biggest banks have pledged to implement the plans, part of President Xi Jinping’s campaign to bolster support by tackling government waste and corruption.

The risk is that lenders will bleed talent just when China needs skilled managers to grapple with interest-rate deregulation, an explosion in shadow banking and rising levels of soured credit. While banks plan to test stock incentives for employees, the rollout of such measures may be slow and their scope limited, according to Guotai Junan Securities Co. and Changjiang Securities Co.

“The big four state banks are really large entities that depend on hundreds — if not thousands — of highly skilled bankers to operate,” said Victor Shih, an associate professor at the University of California at San Diego who studies China’s politics and finance. An exodus of key staff could leave “a big mess,” he said.

 More in Business Week.

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